Intangible

Assets
Intangible
Assets
 Governed by PAS 38.
 An identifiable nonmonetary asset
without physical substance.
 Controlled by the entity as a result of past
event and from which future economic
benefits are expected to flow to the entity.

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Identifiability
It is identifiable when:
It is separable.
• It is capable of being separated from the
entity and be sold, transferred, licensed,
rented or exchanged.
It arises from contractual or other legal rights

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Control
The entity must be able to enjoy future
economic benefits from the asset and prevent
other from enjoying the same benefits.

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Future Economic
Benefits
Includes revenues, cost savings

For example, the use of intellectual property in

a production process or the legal right to
use a new technology, may reduce future
production costs rather than increase future
revenue.

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Recognition of
Intangible
Assets

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Recognition
 It is probable that future economic
benefits attributable to the asset will
flow to the entity.
 The cost of the intangible asset can be
measured reliably.

 Judgment is based on external

evidence.
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Initial Measurement
 PAS 38, paragraph 4 provides that an
intangible asset shall be measured
initially at cost.

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Separate Acquisition
 Comprises of:
 Purchase price
 Import duties and nonrefundable
purchase taxes
 Directly attributable costs of
preparing the asset for the intended
use.

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Separate Acquisition
 Directly attributable costs include:
 Cost of employee benefits arising
directly from bringing the asset to its
working condition.
 Professional fees arising directly from
bringing the asset to its working
condition.
 Cost of testing whether the asset is
functioning properly.
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Separate Acquisition
 If payment is deferred, the cash price
equivalent is the cost.
 Cash price equivalent – total
payments = interest expense over
the credit period.

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Cost which are not capitalizable
 Examples of cost that are not included but
expensed immediately:
 Cost of introducing a new product or
service, including costs of advertising and
promotional activities.
 Costs of conducting business in a new
location or with a new class of customer,
including costs of staff training.
 Administration and other general overhead
costs.
 Costs incurred while an asset capable of
operating in a manner intended by
management has yet to be brought into
use.
 Initial operating losses.
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Acquisition as part of a
business combination
a. Based on fair value on the date of
acquisition.
b. If there is an active market, the quoted
price of an identical asset provides
reliable evidence of fair value
• If there is none, then that of a similar
asset may provide evidence.
a. If there is no active market, the quoted
price for an identical or similar asset may
be available.
b. Based on unobservable input usually
developed by the entity using the best
available information. 13
Acquisition by government
grant
When a government transfers or allocates to
an entity intangible assets such as:
• Airport land rights
• Licenses to operate radio or television
stations
• Import licenses or quotes or rights to
access restricted resources

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Acquisition by government
grant
Such assets may be initially recorded at
either:
a. Fair value
b. Nominal amount or zero plus any
expenditure that is directly attributable to
preparing the asset for its intended use.

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Acquisition by exchange
Intangible assets may be acquired in
exchange for a nonmonetary asset or a
combination of monetary asset and
nonmonetary asset. Often measured at fair
value.

If the exchange transaction lacks

commercial substance or when the cash
flows of the asset received do not differ
significantly from the cash flows of the asset
transferred, then it is measured at carrying
amount of the asset given up.
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Internally generated
intangible asset
The cost of an internally generated
intangible asset comprises all directly
attributable costs necessary to create,
produce and prepare the asset to be capable
of operating it in the manner intended by
management.

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Internally generated
intangible asset
The following expenditures are not
components of the cost of an internally
generated intangible assets:
Selling, administrative and other
general overhead, unless this expenditure
can be directly attributed to preparing the
asset for use.
Clearly identified inefficiencies and
initial operating losses incurred before an
asset achieves planned performance.
Expenditure on training staff to operate
the asset.
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Internally generated
intangible asset
PAS 38, paragraph 63 provides that
internally generated brands, mastheads,
publishing titles, customer lists and items
similar in substance shall not be recognized
as intangible assets. They shall be
components of internally generated goodwill
and shall be expensed when incurred.

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Recognition of
an expense

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Expenditures that are
expensesd when incurred
Start up costs
Organizational costs such as legal and
secretarial costs; preopening costs for
new facility and preoperating costs for
commencing new operation or launching
new product.
Training Costs
Advertising and promotional costs
Business relocation or reorganization costs

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Subsequent expenditure
Any subsequent expenditure on an
intangible asset shall be recognized as
expense.
It is because most of the subsequent
expenditure are likely to maintain only the
expected future economic benefits embodied.

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Subsequent expenditure
However, there are subsequent
expenditures that may be capitalized if the
following criteria are met:
It is probable that future economic
benefits attributable specifically to the
subsequent expenditure will flow to the
entity.
The subsequent expenditure can be
measured reliably.

Only rarely will a subsequent expenditure

on an intangible asset results to an addition
to the cost of the intangible asset. 23
 Identifiable and
Unidentifiable
Intangible Assets

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Identifiable
1. Patent
2. Copyright
3. Franchise
4. Trademark or brandname
5. Leasehold or lease right
6. Computer software
7. Broadcasting license, airline right and fishing
right
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Unidentifiable
It cannot be sold, transferred, licensed, rented or
exchanged separately. It is inherent in a
continuing business and can only be identified
with the entity as a whole.

Such is the case of goodwill.

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 Subsequent
Measurement
The entity may choose either the cost
model or revaluation model
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1. Cost Model
 At cost less any accumulated amortization
and any accumulated impairment loss.

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2. Revaluation Model
 At revalued amount less any subsequent
amortization and any subsequent
accumulated impairment loss.

 Revalued amount is the fair value at the date

of revaluation and is determined by
reference to an active market.

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Amortization of
Intangible
Assets
Finite and Indefinite

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Amortization
 It is the systematic allocation of the
amortizable amount of an intangible asset
over the useful life.
 Amortization shall begin when the asset is
available for use, meaning, when the asset
is in the location and condition for the
intended use.
 It will cease when the intangible asset is
derecognized or when the asset is classified
as “held for sale” 31
PAS 38 provides the following
amortization of intangible assets

1. Paragraph 37 – those intangible assets

with limited or finite life are amortized
over their useful life.
2. Paragraph 107 and 108 – those with
indefinite life are not amortized but are
tested for impairment at least annually
and whenever there is an indication
that the intangible asset may be
impaired. 32
Amortization Method
It shall reflect the pattern in which the
future economic benefits from the asset are
expected to be consumed by the entity.

If such patterns cannot be determined

reliably, straight line method of
amortization shall be used.

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Impairment of
Intangible
Assets

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Impairment
 Intangible assets with finite useful life are
tested for impairment whenever there is an
indication of impairment at the end of the
reporting period.
 Intangible assets with indefinite life are
tested annually and whenever there is an
indication of impairment.

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Impairment
 Impairment loss is recognized is the
recoverable amount is less than the carrying
amount.

 Recoverable amount is the higher between

fair value less cost of disposal and value in
use

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 Derecognition
and Disclosures

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Derecognition
An intangible asset is derecognized or
elimited from the balance sheet:
On disposal of the asset
When no future economic benefits are
expected from its use and disposal.

Gains and losses shall be determined as

net disposal proceeds – carrying amount
of the asset.

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Disclosures
1. Useful lives are indefinite or finite, and if finite,
the useful lives or the amortization rate
2. The amortization method
3. The gross carrying amount and any accumulated
amortization at the beginning of the period
4. The line item in the income statement which any
amortization of intangible asset is included
5. Additions, separately showing those internally
generated, those acquired separately and those
acquired through business combination.
6. Intangible assets classified as held for sale in
accordance with PFRS 5

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Thank you!
Any questions?

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