Intangible Asset
Recognition and initial measurement
Recognized as an intangible asset if it meets:
- Definition criteria and
- Recognition criteria
Initial measurement will be at cost
Recognition
Definition: an intangible asset is a
-Identifiable
Either individually or
- Able to be separated or divided from the entity
- Sold, transferred, licensed, rented or exchanged
- Either individually or together with a related contract, Identifiable asset or liability
Arises from contractual rights or legal rights
- Even if right aren’t separated or transferable
- Non-monetary
- Asset
A resource controlled by the entity
- Ability to restrict access to asset's future economic benefits
- Power to obtain asse's FEB
As a resource of past events
From which an inflow of future economic benefits is expected
- Without physical substance
Recognition criteria
-The expected inflow of future economic benefits is probable
-The cost must be reliably measured
Initial measurement
At cost
-Purchase price and
-Directly attributable costs
Necessary to bring asset to a condition that enables it to be used in the manner that
management intended
Intangible assets acquired through a separate purchase
-Recognition criteria is met automatically
Since it purchased separately = it has a value that is reliably measured → the purchase price
The fact that the asset was purchased means the entity expects the inflow of future
economic benefits to be probable
- Only need to prove definition criteria are met
- measurement
At cost - follows the general rules
Intangible assets acquired through asset exchange
- Recognition
Must meet both definition and recognition criteria
Asset acquired will be recognised and asset given up will derecognised if transaction has
commercial substance
- If its future cash flows are expected to change as a result of the transaction
- Initial measurement
Cost of intangible asset acquired will be at fair value, measured as the value of:
- FV of asset given up
- FV of acquired asset if it is more clearly evident
- CA of asset given up if neither FVs are available or transaction lacks commercial
substance
Intangible assets that are internally generated
- Intangible assets that promote the creation of a successful business are contributing
to goodwill. Since the entity is creating goodwill = internally generated goodwill
- IGG does not definition and recognition criteria of IA and therefore is always expensed
- Intangible items that do not meet def and rec criteria are always expensed
Internally generated goodwill
- Costs like those that
Develop customer loyalty
Market share
And efficient and happy staff members
- These costs
Are not an identifiable resource (not separable)
May not be able to control such items
It is not possible to reliably measure its value
Recognition of subsequent expenditure
- Capitalisation of subsequent cost
Is unusual (due to the nature of IAs)
Occurs if the costs meet the IA:
- Definition
- recognition criteria (the basic 2)
Is not allowed if it relates to internally generated
-brands, mastheads, publishing titles, customer lists and similar items
Subsequent measurement: Amortisation and impairment testing
If IA is ready for use, we consider both
- Amortisation requirements and
- Impairment testing requirements
If IA not yet ready for use, just
- impairment testing reqs
Intangible asset ready for use could have
Finite useful life or
- It will be amortised and tested for impairment in same way as PPE
Indefinite useful life
- Will not amortised and has more stringent impairment testing
Amortisation
Reflects the use of lA
Recognised as an expense unless IA is being used to make another asset then it is capitalised
Only for lAs that are ready for use and have finite live variables
3 variables to take into consideration
- Residual value
- Period of amortisatior
- Method of amortisatior
Residual value
- Used to calculate depreciable amount = cost less RV
- For lAs, residual value should always be 0 unless
A 3rd party has committed to buying t he lA at the end of its useful life OR
The lA has an active market and the residual value can be measured from this active market
AND it is possible that active market will exist at the end of
- Should be reassessed at least by the end of every year
Period of amortisation
- Begins on date it becomes available for use
- Must cease at earlier of
Derecognition of the asset
Reclassification of asset
- Amortisation period should be shorter of:
Assets expected economic useful life or;
Legal life
- Amortisation period can be estimated in terms of
Time - 5 years ot
Units - 50 000 units
Method of amortisation
- Methods
Straight line
Diminishing balance
Units of production
- Method used should reflect the usage of the FEB but if you can't determine the pattern, use
straight line
The 3 variables should be re-assessed at the end of every reporting period
- For IA's with an indefinite useful life - reassess whether this assessment of UL is still appropriate or
if it now has a finite useful life
- Changes accounted for in change in estimate
Impairment testing
Impairment testing of an intangible asset is affected by whether the intangible iter
- is available for use and:
has a finite useful life
has an indefinite useful life;
- is not yet available for use;
- or is purchased goodwill.
Impairment testing of an lA that has a finite useful life (general impairment testing)
- Perform an impairment indicator review at reporting date
- If there is a possible impairment that:
Is material; and
Cannot be fixed by processing extra amortisation
- we calculate the RA at reporting date
If the CA>RA = the IA is impaired
Impairment testing of lA with an indefinite useful life:
- Must calculate RA annually even if there is no indication, at same time every year
- May use prior year's RA on the condition that??
Impairment testing of lAs not yet available for use
- Calculate RA annually, at any time, but the same time every year
- This annual calculation may not be avioded
- May never use a prior years calaulator of recoverable amount
Reversing an impairment
- First check if the amortisation should not simply be decreased (change in estimate);
- If the CA is still too low, then process an impairment reversal;
- When processing an impairment reversal, do not increase the CA above what i would've been had
the original impairment never been processed (HCA
Subsequent measurement: the two models
Cost model
Cost less
- AA and IL
Revaluation model
- FV at date of revaluation less
FV measured in terms of an active market
Active market:
- A market in which transactions for the asset or liability
- Take place with sufficient frequency and volume To provide pricing information on an
ongoing basis
- Subsequent AA and accumulated IL
