Definition[ edit ] Intangible assets have been argued to be one possible contributor to the disparity between company value as per their accounting records, and company value as per their market capitalization.
Tweet The purpose of IAS 38, Intangible Asset is to prescribe the Ias 38 research and development and measurement criteria for intangible assets that are not covered by other Standards.
The principal issues involved relate to the nature and recognition of intangible assets, determining their costs, and assessing the amortization and impairment losses that need to be recognized. In some cases, an intangible asset may be contained on or in a tangible item.
Obvious examples are computer software, films, and licensing agreements.
In such situations, judgment is required to determine which is the more significant element. In the case of a machine incorporating software that cannot be operated without the software, the entire item would be treated as property, plant, and equipment under IAS However, add-in software on a computer, such as some forms of report writing software or antivirus software, is not required for operating the tangible asset and therefore would be accounted under IAS Those that are within the scope of another Standard, Financial assets as defined in IAS 39, Mineral rights and expenditure on the exploration for, or development and extraction of, minerals, oil, natural gas, and similar non-regenerative resources.
Elaboration And Interpretation Of The Definitions Identifiability — In order to meet the definition of an intangible asset, expenditure on an item must be separately identifiable in order to distinguish it from goodwill.
An asset meets the identifiability criterion when it: Is capable of being separated from the entity and sold, transferred, licensed, or rented either individually or in combination with a related contract, asset, or liability; or Arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or other rights or obligations.
Control — An entity controls an asset if it has the power to obtain the future economic benefits flowing from the underlying resource and to restrict the access of others to those benefits. Usually this control would flow from legally enforceable rights.
However, legal enforceability is not necessary if control can be enforced in some other way. For example, one method of control is keeping something secret through employee confidentiality.
Control needs to be looked at carefully. An entity may be able to identify skills in its workforce and to measure the costs of providing those skills to its staff via training.
However, the entity usually does not have control over the expected economic benefits arising from the skilled staff, as they can leave their employment. Even if the skills are protected in some way such that departing staff are not permitted to use them elsewhere, the entity has lost the future benefit of the skills imbued in the departing staff member.
Similarly, the purchase of customer lists or expenditure on advertising, while identifiable, does not provide control to an entity over the expected future benefits.
Customers are not forced to buy from the entity and can go elsewhere. Future Economic Benefit — Future economic benefit may include revenue from the sale of products, services, or processes, but also includes cost savings or other benefits from use of an asset.
Use of intellectual property can reduce operating costs rather than produce revenue. Recognition And Measurement Of Intangible Asset An item may be recognized as an intangible asset when it meets the definition of an intangible asset [see above] and meets these recognition criteria: It is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and The cost of the asset can be measured reliably.
Initially, intangible assets shall be measured at cost. The cost of separately acquired intangible assets comprises: Purchase price, including any import duties and non-refundable purchase taxes, less discounts and rebates; and Directly attributable costs of preparing the asset for use.
Directly attributable costs can include employee benefits, professional fees, and costs of testing.
Costs of introducing new products or services, such as advertising, Costs of conducting new business, Administration costs, Costs incurred while an asset that is ready for use is awaiting deployment, Costs of redeployment of an asset, Initial operating losses incurred from operation Fact: In the corporate world, it is often noticed that entities spend huge sums of money on advertising campaigns to launch new products.
Some multinational entities even hire famous performing artists or movie stars to act as brand ambassadors of the new products. Because the amounts spent on these advertising campaigns are so huge, these entities sincerely believe that the benefits from this promotion would last longer than a year and thus they are inclined to defer the costs of introducing new products over a period of two to three years.
When the financial statements of these entities have to be audited, this is usually a contentious issue. Here are the rule of thumb to follow:The IFRS Foundation's logo and the IFRS for SMEs ® logo, the IASB ® logo, the ‘Hexagon Device’, eIFRS ®, IAS ®, IASB ®, IFRIC ®, IFRS ®, IFRS for SMEs ®, IFRS Foundation ®, International Accounting Standards ®, International Financial Reporting Standards ®, NIIF ® and SIC ® are registered trade marks of the IFRS Foundation, further details of which are available from the IFRS.
February Exposure Draft E9, Accounting for Research and Development Costs July IAS 9 (), Accounting for Research and Development Costs 1 January Effective Date of IAS 9 () September IAS 38, Intangible Assets 1 July Effective Date of IAS 38 (p.
). Historisk utveckling av IAS 38 February Exposure Draft E9, Accounting for Research and Development Costs July IAS 9 (), Accounting for Research and Development Costs. International Accounting Standard 38 Intangible Assets Objective as defined in IAS 32 Financial Instruments: Presentation; (c) the recognition and measurement of exploration and evaluation assets (see start-up, research and development activities.
Research and development activities are. Charge all research cost to expense. [IAS ] Development costs are capitalised only after technical and commercial feasibility of the asset for sale or use have been established.
This means that the enterprise must intend and be able to complete the intangible asset and either use it or sell it. The IFRS Foundation's logo and the IFRS for SMEs ® logo, the IASB ® logo, the ‘Hexagon Device’, eIFRS ®, IAS ®, IASB ®, IFRIC ®, IFRS ®, IFRS for SMEs ®, IFRS Foundation ®, International Accounting Standards ®, International Financial Reporting Standards ®, NIIF ® and SIC ® are registered trade marks of the IFRS Foundation, .