INTANGIBLE ASSETS (PAS 38)

OVERVIEW
- An intangible asset is an identifiable, non-monetary asset without physical substance.
Identifiability Control Future Economic Benefits
- Asset is identifiable when (a) it is - is the power of the entity to obtain the future - May include revenue from the sale of
separable and (b) it arises from economic benefits flowing from the intangible products or services, cost savings
contractual or other legal rights. asset and restrict access from others. and other benefits.

SCOPE; does not include the following:

 Goodwill acquired from business combination  Deferred Taxes (PAS 12)
 Rights arising from exploration and evaluation of assets (PFRS 6)  Leases (PAS 16) &Employee benefits (PAS 19R)
 Expenditure on the development and extraction of wasting asset  Deferred acquisition cost and intangible assets
 Intangible assets held for sale (PAS 2)  Financial assets & non-current intangible assets HFS

RECOGNITION
Probable that the FEB will flow to the entity. The cost can be measured reliably.

INITIAL MEASUREMENT
GR: @ cost. XPN: it can be acquired through
1. SEPARATE ACQUISITION 5. EXCHANGE
- PP + import duties and non-refundable taxes after - Given up + Cash paid → Asset Received → CA + Cash paid
discounts + DACs - No CS: CA + cash paid
2. DEFERRED SETTLEMENT BASIS 6. INTERNALLY GENERATED
- CPE; the difference of CPE and total payments is interest - DACs: (1) cost of materials and services, (2) cost of employee
expense. benefits (3) legal right registration and (4) Amortization of
3. ACQUISITION THROUGH BUSINESS COMBINATION patents and licenses used.
- The cost is based on the FV on the date of acquisition. - Expensed: (1) selling, admin and general OH costs (2) clearly
4. ACQUISITION THROUGH GOVERNMENT GRANT identified inefficiencies and initial operating losses (3)
- either at Fair Value or Nominal amount or Zero + DACs training expenses.

SUBSEQUENT MEASUREMENT
- Choose between (same with PPE)
o COST MODEL – cost less AA less AIL. (used in practice)
o REVALUATION MODEL – carried at revalued amount less AA less AIL.
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RESEARCH PHASE
- All research costs in this phase are expensed. It includes:
Laboratory research aimed at obtaining new knowledge. Search for application of research findings
Search for alternatives for materials, devices and etc. Evaluation of possible alternatives for new or improved materials

DEVELOPMENT PHASE
- is the application of research findings or other knowledge to a plan. Capitalization depends if the entity can demonstrate ALL:
Probability of Economic benefit Ability to use or sell
Intention to complete Technical feasibility (when prototype or model is produced)
Resources adequate and available Expenses can be measured reliably.

Development activities include:

Design, construction and testing of preproduction prototypes Design, construction and operation of pilot plant

Design of tools, jigs, molds and dies involving new technology Design, construction and testing of a chosen alternative
- If the entity cannot distinguish → treat the expenditure as research costs.
- In process R&D acquired separately → recognized as asset initially. Subsequent: depends on the related phase.
- If the item of PPE has alternative use, the depreciation is charged to R&D expense; the CV → PPE.
- If the item of PPE has no alternative use, the cost is immediately recognized as R&D Expense.
- Internally generated brands, mastheads, publishing titles, customer lists are not intangible assets; expensed outright.

AMORTIZATION
CONCEPT the systematic allocation of the depreciable amount of an intangible asset over the asset’s UL.
PERIOD shall begin when the asset is available for use and ceases when the asset is derecognized.
AMOUNT Cost less residual value
RESIDUAL VALUE GR: Zero; XPN: (a) third party is committed to buy the IA and (b) there is an active market for the IA
METHOD Shall reflect the pattern in which the asset’s FEB are expected; Straight-line method.

PRESENTATION
- Amortization charge is recognized in P/L unless it is required to be included in CA of another asset.

SUBSEQUENT COSTS ON INTANGIBLE ASSET

- GR: expensed because most subsequent expenditures are likely to maintain only the expected FEB in the IA.
- XPN: capitalized or added if (a) probable that the FEB will flow to the entity and (b) the sub exp can be measured reliably.

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 Finite or Limited Life Indefinite Life
If the entity can determine reliably the length When based on an analysis of all relevant factors, there is
Useful life definition
of or number of productions, the IA’s UL. no foreseeable limit to the period; but not endless.
Copyright, Fixed-term Franchise, Patent,
Examples Trademark, Perpetual Franchise & Goodwill
License & Computer Software,
Not amortized but tested for impairment at least
Amortization Amortized using UL
annually.
Asset is tested for impairment when Asset is tested for impairment annually and when
Impairment
indicators are present. impairment indicators are present.
Computation of Value in
Future Cash Flows x PV Factor Annual Cash Flow / Discount Rate
Use

MAJOR CATEGORIES OF INTANGIBLE ASSETS

(1) MARKETING-RELATED
Trademarks Masthead Web Development Costs
Definition ✓ Visible sign of distinguishing goods Refer to a list, usually Internal – capitalized;
✓ Not amortized but subject to found on the editorial External and customer can place order –
impairment test at least annually. page of the newspaper capitalized;
✓ 10 years, renewable for 10 years each customer cannot place order – Expense
Recognition Acquired separately – PP + DACs Acquired separately – PP Planning – expensed
Internally developed – expenditures + DACs Internally Application, infrastructure, graphic design stage
required to establish it, filing and developed are expensed. & content development – capitalized
registration fees Content development stage – expensed
Subsequent All expensed whether successful or not Operating stage – expensed unless criteria is
costs met

CUSTOMER-RELATED ARTISTIC-RELATED CONTRACT-RELATED

Customer list Copyright Franchise Leasehold
customer database exclusive right granted by the Agreement to take-on Right acquired by virtue of
Definition
and information government to the author business activity under brand contract of lease
Purchased: PP + DACs; or LSP & Payment for
PP + DACs; part of IFF and all legal fees and
Purchased Developed: expenses incurred assignment: Capitalized
intangible expenses
in the production of the work

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 CUSTOMER-RELATED ARTISTIC-RELATED CONTRACT-RELATED
Customer list Copyright Franchise Leasehold
Periodic Payments: Expense
When internally Copyright is written off against
Expensed Periodic payments (CFF) And if not substantial,
generated the revenue of first printing.
expensed outright.
• Granted for definite period – • Amortization: GR: over the
amortized over UL or definite useful life of the lease.
Useful life or legal life period (SHORTER) • Leasehold improvements –
Life/Term Amortized over life
(SHORTER) • Granted indefinitely or item of PPE, not IA; depreciated
perpetually – not be amortized over the life of the lease or life
but tested for impairment (SHORTER).

(5) TECHNOLOGY-RELATED
a. Patent – exclusive right granted to an inventor
i. Acquired separately – PP + DACs
ii. Internally developed – costs include licensing & legal fees; R&D and defense litigation are expensed.
iii. Legal life: 20 years
iv. Amortization – legal life or UL (SHORTER)
1. Acquired separately – remaining legal life or useful life (SHORTER)
2. Internally developed – legal life or useful life (SHORTER)
3. Competitive patent to protect patent – remaining life of the original patent.
4. Acquisition of related patent to extend life – extended life
b. Computer Software – collections of computer data and instructions.
i. System software – basic non-specific functions of the computer; application – used to accomplish tasks.
ii. Related expenses:
1. Cost of coding, testing and to produce the product masters – capitalized
2. Prior to establishment of Technical Feasibility – expensed
3. Costs before technical feasibility – expensed
4. After establishment of Technical Feasibility – capitalized
5. Reproduction of CS – inventories
iii. Classification (depends on intention of entity)
1. Integral part of PPE – not an IA but rather a PPE.
2. Used for licensing or rental – intangible assets
3. Reproduced for resale – inventories

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 (6) OTHERS
c. Goodwill – when earnings exceed normal earnings by reason of good name
i. From business combination – IA
ii. Internally developed – not recorded
iii. Amortization: GR: Not amortized; XPN: tested for impairment at least annually
iv. Measurement of goodwill
1. Residual approach – PP less FVINA.
2. Direct approach
Purchase of Average Excess Earnings Capitalization of Average Excess Earnings
Average Earnings xx Average Earnings xx
Less: Normal Earnings (xx) Less: Normal Earnings (xx)
Average excess Earnings xx Average excess Earnings xx
Multiply by: Number of periods xx Divided by: Capitalization Rate xx
GOODWILL xx GOODWILL xx

Capitalization of Average Earnings PV or Discounted Value Average Excess Earnings

Average Earnings xx Average Earnings xx
Divided by: Capitalization Rate xx Less: Normal Earnings (xx)
FVINA, including goodwill xx Average excess Earnings xx
Less: FVINA, excluding goodwill (xx) Multiply by: PV of Ordinary annuity at % xx
GOODWILL xx GOODWILL xx

DERECOGNITION AND FINANCIAL STATEMENT PRESENTATION

- The intangible asset is derecognized when (1) upon disposal and (2) when no FEB are expected from its use.
- Presented under Non-Current Section of the SFP.

CASH GENERATING UNIT

- Smallest identifiable group of assets that generates cash inflows that are largely dependent of the cash inflows.
- Examples are: product line, bookstore of a school, convenience store of a gasoline station & supermarket of a mall.
- Same impairment application with tangible assets is used.

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