Transfer Pricing Associates

How to recognize intangibles?

post Monday May 21, 2012

Danilo Rizzuti


The IAS 38 prescribes how intangible assets should be treated in accounting, but which have not been dealt with by the IFRS. It lists the criteria with which intangibles are identified and prescribes the subsequent valuation and carrying amount of the asset.

What is an intangible asset?
It is an identifiable, nonmonetary asset which has no physical substance. It has 3 critical attributes:

  1. needs to be identifiable;
  2. gives the power to obtain benefits;
  3. provides economic benefits.

Intangible assets can be acquired through:

Intangible assets are recognized if:

If the intangible assets has been generated internally, an additional criteria must be met:

Initial recognition of intangible assets: R&D costs

If the R&D costs cannot be distinguished from one another, they should be treated as if the expense was incurred in the research phase.

Initial recognition of intangible assets: in-process R&D acquired in a business combination

Brands, mastheads, publishing titles, customer lists and other similar items which have internally been created, cannot be recognized as assets. 

Initial recognition of intangible assets: Computer Software

Other costs: There are other costs that should be expensed when incurred (so when the goods/services have been received):

if any of the costs have been pre-paid, then they should be recorded as assets and subsequently expensed once the service/product has been received.



Image courtesy of Danilo Rizzuti

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