post Monday May 21, 2012
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:
-
needs to be identifiable;
-
gives the power to obtain benefits;
-
provides economic benefits.
Intangible assets can be acquired through:
-
separate purchase;
-
as part of business combination;
-
by a government grant;
-
by exchange of assets;
-
by self-creation.
Intangible assets are recognized if:
-
it is probable that the future economic benefits that are attributable to the asset will flow to the entity;
-
The cost can be measured reliably.
If the intangible assets has been generated internally, an additional criteria must be met:
-
the asset’s probability of future economic benefits should be based upon reasonable assumptions which can be supported based on expected conditions that could exist over the life of the asset.
Initial recognition of intangible assets: R&D costs
-
research costs need to be expensed;
-
costs for development are also expensed, unless it has been established that the asset has technical and commercial feasibility.
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
-
when an intangible asset has been acquired in a business combination, it is recognized as an asset and it is valued at its cost. Even if a portion of it is classified as research;
-
Other expenditures incurred thereafter are expensed as R&D, or capitalized (depending on whether the criteria has been met).
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
-
when purchased, it should be capitalized;
-
if it is a part of the operating system of a hardware, then the software should be included in the costs of the hardware;
-
if internally generated, it should be expensed unless it meets the criteria for capitalization;
-
If capitalized, amortization should be calculated over its useful life.
Other costs: There are other costs that should be expensed when incurred (so when the goods/services have been received):
-
goodwill that has been generated internally;
-
start up, pre-opening and pre-operating costs;
-
training costs;
-
advertising and promotional costs;
-
relocation costs.
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.
[Source: http://www.iasplus.com/en/standards/standard37]
Image courtesy of Danilo Rizzuti
Leave your comment
Comments on 'How to recognize intangibles?' (0)
