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Ias 38 Intangible Assets (2)


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Ias 38 Intangible Assets (2)

  1. 1. IAS 38 <br />Intangible Assets (part two)<br />Accounting treatment and disclosure<br />1/17/2010<br />1<br />IAS 38 Intangible Asset Part Two<br />
  2. 2. Recognition and measurement<br />Recognise if:<br />Probable expected future economic benefits attributable to the asset will flow to the entity<br />Cost can be measured reliably<br />Assess the probability<br />Using reasonable and supportable assumptions<br />Represent management’s best estimate of economic conditions over useful life of asset<br />1/17/2010<br />2<br />IAS 38 Intangible Asset Part Two<br />
  3. 3. Subsequent expenditure on research and development project <br />Research phase:<br />Treat as expense when incurred<br />Development phase<br />Treat as intangible asset if the entity can demonstrate all of the following:<br />Technical feasibility<br />Intention to complete<br />Ability to use or sell it<br />How economic benefits will be generated<br />Available resources to complete, use or sell<br />Able to measure reliably expenditure during development<br />Internally generated brands, mastheads, publishing titles, customer lists etc are expensed as incurred<br />1/17/2010<br />3<br />IAS 38 Intangible Asset Part Two<br />
  4. 4. Recognition of an expense<br />Recognise expenditure on intangible item as expense unless <br />Intangible asset meets recognition criteria<br />Acquired in a business combination as part of goodwill<br />Once recognised as expense, it cannot be recognised as an asset at a later date<br />1/17/2010<br />4<br />IAS 38 Intangible Asset Part Two<br />
  5. 5. Measurement<br />Cost Model<br />Revaluation Model<br />1/17/2010<br />5<br />IAS 38 Intangible Asset Part Two<br />
  6. 6. Revaluation<br />Fair value is determined by an active market<br />If no active market, use cost model<br />If revalued but no longer in active market, use last revaluation by reference to active market & test for impairment<br />Revaluations made regularly<br />Carrying amount does not differ significantly from fair value at balance sheet date<br />Credit increase to revaluation surplus in equity unless it reverses a decrease previously recognised as expense<br />Debit decrease as expense after any credit balance in equity has been reversed<br />1/17/2010<br />6<br />IAS 38 Intangible Asset Part Two<br />
  7. 7. Useful life<br />Decide if useful life is finite or indefinite<br />If definite, how long will it generate net cash inflows?<br />No forseeable limit to period of net cash inflows = indefinite useful life<br />Does not exceed period of contractual or legal rights but can be shorter<br />Include renewal periods if evidence supports renewal without significant cost<br />1/17/2010<br />7<br />IAS 38 Intangible Asset Part Two<br />
  8. 8. Intangible assets with finite useful life<br />Allocate depreciable amount on a systematic basis over its useful life<br />Begin amortisation when available for use<br />Cease when asset is classified as held for sale or derecognised<br />Amortisation method to reflect pattern of economic consumption<br />Use straight line method if no other method is appropriate<br />Recognise amortisation in profit or loss unless another standard permits adding it to the carrying amount of another asset<br />1/17/2010<br />8<br />IAS 38 Intangible Asset Part Two<br />
  9. 9. Residual Value<br />Assume residual value of asset with finite life is zero unless :<br />A third party has committed to buy it at the end of its useful life<br />There is an active market for the asset<br />Residual value can be determined by reference to active market<br />Probable that the active market will exist at the end of the useful life<br />1/17/2010<br />9<br />IAS 38 Intangible Asset Part Two<br />
  10. 10. Review of amortisation period and amortisation method<br />Review at each financial year end<br />Change amortisation method if <br />useful life is different from previous period<br />Change in expected pattern of consumption of future economic benefits<br />Treat as change in accounting estimate per IAS8<br />1/17/2010<br />10<br />IAS 38 Intangible Asset Part Two<br />
  11. 11. Intangible assets with indefinite useful lives<br />Do not amortise<br />Review at each period end<br />Treat change from indefinite to finite life as change in accounting estimate according to IAS8<br />1/17/2010<br />11<br />IAS 38 Intangible Asset Part Two<br />
  12. 12. Retirements and disposals<br />Derecognise an intangible asset when<br /><ul><li>Disposed
  13. 13. Future economic benefits are no longer expected</li></ul>Net disposal proceeds – carrying amount of asset = gain or loss<br />Recognise in profit or loss when asset derecognised<br />Do not classify gains as revenue<br />1/17/2010<br />12<br />IAS 38 Intangible Asset Part Two<br />
  14. 14. Disclosure<br />Distinguish between internally generated assets and other intangible assets<br />Indefinite or finite useful life<br />Amortisation rates used<br />Amortisation methods used<br />Gross carrying amount<br />Accumulated amortisation and impairment loss aggregate at beginning and end of period<br />Line item of income statement in which amortisation is included<br />1/17/2010<br />13<br />IAS 38 Intangible Asset Part Two<br />
  15. 15. Disclosure<br />Reconciliation of carrying amount at beginning and end of period<br />Additions (internally developed, separately acquired and acquired through business combinations)<br />Classified as held for sale<br />Included in disposal group classified as held for sale<br />Increases or decreases from revaluation<br />Increases or decreases from impairment losses in equity<br />Impairment loss in profit or loss<br />Impairment loss reversed in profit or loss<br />Amortisation recognised in the period<br />Net exchange differences arising on translation<br />Other changes in carrying amount<br />1/17/2010<br />14<br />IAS 38 Intangible Asset Part Two<br />
  16. 16. Disclosure<br />Intangible asset with indefinite useful life<br />Carrying amount<br />Reason for indefinite useful life assessment<br />Significant factors assessed<br />Intangible asset material to financial statements<br />Description, carrying amount and amortisation and remaining amortisation period<br />Intangible assets acquired with government grant at fair value<br />Initial fair value<br />Carrying amount<br />Cost or revaluation model used<br />Intangible assets with restricted title<br />Carrying amount<br />Intangible assets pledged as security for liabilities<br />Carrying amount<br />Contractual commitments for acquisition of intangible assets<br />1/17/2010<br />15<br />IAS 38 Intangible Asset Part Two<br />
  17. 17. Disclosure<br />Research and development costs recognised as expense during the period<br />Revalued intangible assets<br />Class of intangible asset<br />Effective date of revaluation<br />Carrying amount <br />Carrying amount when measured using cost model<br />Revaluation surplus<br />At beginning and end of period<br />Change during the period<br />Restriction on distribution of balance to shareholders<br />Fair value estimates<br />Methods and significant assumptions to estimate fair value<br />1/17/2010<br />16<br />IAS 38 Intangible Asset Part Two<br />
  18. 18. Transitional provisions<br />Apply prospectively from same date as applying IFRS3 retrospectively<br />Do not adjust carrying amounts recognised at that date<br />Reassess useful lives at that date<br />If changed, treat as change in accounting estimate IAS 8<br />Apply from 31 March 2004<br />Agreement date of business combination<br />Prospectively to other intangible assets<br />Apply early together with IFRS 3 and IAS 36<br />1/17/2010<br />17<br />IAS 38 Intangible Asset Part Two<br />
  19. 19. Summary<br />Intangible assets that give control over an identifiable resource with future economic benefits are recognised at cost or fair value<br />Research is not an intangible assets and is expensed<br />Intangible assets are measured using either the cost or revaluation model<br />Intangible assets are reviewed annually for impairment and changes in useful economic life<br />Intangible assets with indefinite useful lives are not amortised<br />Internally generated intangible assets are expensed as incurred<br />1/17/2010<br />18<br />IAS 38 Intangible Asset Part Two<br />