Intangible Assets PAS 38

- Identifiable nonmonetary asset without physical substance.

Three essential criteria in definition of intangible asset
a. Identifiability
a.1. Separable- could be sold, transferred, licensed, rented, or exchanged
separately.
a.2. Arises from contractual or other legal right- acquired through purchase
b. Control- power of an entity to obtain future economic benefits from the asset and
prevent other from enjoying the same benefits.
Capacity of an entity to control FEB- stem from legal rights that are enforceable in a
court of law as in the case of trademark, copyright, and patent.
C. Future economic benefits- may include revenue from the sale of products, cost
savings or other benefits resulting from the use of the asset entity.
Identifiable intangible asset- include patent, copyright, franchise, trademark
Unidentifiable intangible asset/Goodwill- cannot be sold, transferred, rented,
licensed, or exchanged separately.
Initial measurement of intangible asset
- Cost and comprises:
a. Purchase price
b. Import duties and nonrefundable purchase tax
c. Directly attributable cost of preparing the asset
Internally generated intangible asset- include:
a. Cost of materials and service used
b. Cost of employee benefit
c. Fee to register a legal right
PAS 38 par 63- internally generated brand, masthead, publishing title, customer list and
other item similar in substance shall not be recognized as intangible asset.
PAS 38 par 48- internally generated goodwill shall not be recognized as asset.
Expenditures expensed when incurred
a. Start-up cost
b. Training cost
c. Advertising and promotional cost
d. Business relocation or reorganization cost
e. Selling and administrative overhead
Measurement after recognition- shall use either of the following as accounting policy.
1. Cost model- cost less any accumulated depreciation and impairment loss
2. Revaluation model- Revalued amount or FV on date of revaluation less any
subsequent amortization and any subsequent impairment loss.
Intangible asset can only be carried at revalued amount if there is an
active market for the asset.
Amortization and impairment of intangible asset:
1. Amortized over their useful life- intangible asset with finite or limited life
Intangible asset with finite useful life- tested for impairment whenever there
is an indication of impairment at the end of the reporting period.
2. Intangible assets with indefinite useful life- not amortized but are tested for
impairment at least annually and whenever there is an indication that the intangible
asset may be impaired.
Amortization- systematic allocation of the amortizable amount of an intangible asset
over the useful life.
Amortizable amount- cost of IA less residual value
Journal entry- Debit amortization expense and credit intangible asset account/
accumulated amortization
Beginning of amortization- when the asset is available for use.
Useful life- either finite or infinite
Finite- expressed in terms of years or the number of units to be produced
Indefinite- when there is no foreseeable limit to the period over which the asset is
expected to generate cash flow.
Major problem of IA is determining its useful life.
Amortization method- shall reflect the pattern in which the future economic
benefits from the asset are expected to be consumed by the entity.
If pattern cannot be determined reliably- use straight line method
Research and Development
PAS 38 par 53- if entity cannot distinguish the research phase from the development
phase, the entity treats the expenditure as if it were incurred in the research phase only.
Research- original and planned investigation undertaken with the prospect of gaining
scientific or technical knowledge and understanding
Research activity- undertaken to discover new knowledge that will be useful in
developing new product.
Development- application of research findings to develop a new product.
Examples of research activities
1. Laboratory research
2. Searching for application
3. Conceptual formulation
4. Testing in search for product or alternative
Example of development activities:
1. Design, construction, and testing of prototype model
2. Design of tools involving new technologies
Activities not considered research and development- activities relate to
commercial production
Accounting for research cost- recognized when expense is incurred
Accounting for development cost- incurred at a later stage in a project and probability
of success may be apparent.
- May or may not be recognized as an intangible asset depending on a very strict
criterion
DC may qualify as an intangible asset if all of the following can be
demonstrated by the entity:
1. Technical feasibility
2. Intention to complete
3. Ability to use or sell
4. Generate probable future economic benefit
5. Availability of resource or funding
6. Ability to measure reliably
Capitalizable expenditure- expenditures which have alternative future use
Charged to RND expense subsequently:
1. Cost of materials used
2. Depreciation of equipment used
3. Amortization of IA used