INTANGIBLE ASSETS Idea brands/ trademarks

Research and development

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Disclosure Definitions & Recognition criteria

Subsequent measurement: models

Intangible assets other than goodwill

Initial costs Subsequent measurement: amortisation & impairments

Subsequent costs

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Asset Nonmonetary

Covered by IAS 39: Financial Instruments

Definition: Intangible Asset

Non-physical

Identifiable

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Internally generated:
Goodwill Other intangible assets

Acquired separately for cash

Initial costs

Acquired separately in exchange for an asset other than cash

Acquired through government grant

Acquired through business combination or group of assets

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Never capitalise certain internally generated items

Phase 1: research = intangible

Internally generated: 3 phases

Phase 2: developm ent = intangible

Never capitalise certain costs:

Phase 3: production = tangible assets

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Example: Research and development The following costs are incurred (and paid for in cash): Currency Year 1 Year 2 Year 3 Year 4 Year 5 100 000 200 000 300 000 400 000 0 Comments Research Development (future economic benefits are not probable) Development (asset definition and recognition criteria are met) Development (asset definition and recognition criteria are met) Production began at the beginning of year 5 (the expected useful life of the development asset is 10 years) Year 6 0 Production continues

The recoverable amounts are calculated as follows: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 0 0 250 000 750 000 540 000 520 000

Required:
Prepare all journal entries relating to the above information.

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Solution to example: research and development Debit Credit

Year 1
Research expense Bank 100 000 100 000

Research costs expensed Year 2

Development expense Bank 200 000 200 000 300 000 300 000 50 000 50 000

Development costs expensed Year 3

Development asset Bank

Development costs capitalised

Impairment loss (development) expense Development asset accumulated impairments

Impairment of development asset: 300 000 (ACA) 250 000 (RA) Year 4
Development asset Bank 400 000

400 000 50 000 50 000

Development costs capitalised

Development asset accumulated impairments Impairment loss reversed (income)

Impairment of development asset: 650 000 (ACA) 700 000 (RA: 750 000 limited to Cost: 700 000) Year 5
Amortisation of development (expense) Development asset accumulated amortisation 70 000 70 000 90 000 90 000

Amortisation of completed development: 700 000 / 10 years

Impairment loss (development) expense Development asset accumulated impairments

Impairment of development asset: 630 000 (ACA) 540 000 (RA) Year 6
Amortisation of development (expense) Development asset accumulated amortisation 60 000

60 000

Amortisation of completed development: 540 000 / 9 years

Development asset accumulated impairments Impairment loss reversed (income) 40 000 40 000

Impairment of development asset: 480 000 (ACA) 520 000 (RA: 520 000 limited to HCA: of 560 000 = 700 000 700 000 / 10 x 2 years)

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Cost model

Same as PPE

Intangible assets: Subsequent measurement Models

Fair value limitations Revaluation model May not be applied to certain assets If active market ceases to exist

Cant revalue assets that have not previously been recognised as assets

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Criteria to be met for capitalisation: (seldom met)

IAS 38.20

Subsequent costs

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Finite life

Amortise Extra disclosure Calculate RA only when indicator review suggests this to be necessary (i.e. normal impairment testing)

Never capitalise subsequent costs relating

Intangible assets

Indefinite life

No amortisation Calculate RA every year and whenever there is an indication of an impairment

Review indefinite life status every year: if it changes, it is an indication of a possible impairment calculate the recoverable amount

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Annual review

Residual value

Amortisation

Period

Method

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Goodwill: (Not this year) calculate recoverable amount every year any time but at the same time each year Impairments may never be reversed

Indefinite life: calculate recoverable amount every year UNLESS previous RA calculation was greater than CA AND no evidence to suggest that RA will have dropped below CA

Impairment testing

All other IAs: The usual approach starting with an annual indicator review leading to the calculation of recoverable amt, only if necessary

IA not yet available for use: calculate recoverable amount every year

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