Corporate Reporting- MFRS138,IAS38 Intangible Assets

1. MFRS138 –
Intangible
assets
Dayana Mastura, FCCA (UK),
CA (M)
CORPORATE REPORTING

2. Learning outcomes
• Objective of providing information on intangible assets
• Definition of intangible assets
• Types of intangible assets
• Initial recognition of intangible assets
• Internally generated intangibles
• Initial measurement of intangible assets
• Useful life of intangible assets
• Presentation of intangible assets in financial statements

3. Intangible
assets
Some entities have assets which have physical
substance whereas some assets have no
physical substance.
Assets with physical substance and are
expected to be used for more than one year
may be classified as property, plant and
equipment.
On the other hand if the assets have no
physical substance they may be classified as
intangible.
MFRS138 sets out the accounting treatment for
intangible assets including the recognition
criteria, measurement of intangible assets and
disclosure requirements

4. Objective of
providing
information on
Intangible Assets
Prospective investors are interested to know how an
entity creates, manages and values its intangible assets.
Information on the intangible assets allows the users of
financial statements to anticipate possible developments
to the entity’s financial position in the future.
It explains the entity’s competitive advantages which
should generate future economic benefits in the form of
future revenue.
Information on intangible assets can improve visibility
over. New business plan announced by the entity.
Higher visibility over entity’s perpective will assist the
entity to obtain funds in financing its operations with a
lower interest rate and better access to credit facilities

5. Definition of
Intangible Assets
• MFRS138 defines
intangible asset as
an identifiable non-
monetary asset
without physical
substance

6. Types of
Intangible
Assets
Trademark – a special name,
word, phrase, logo, symbol,
design, image, slogan or a
combination of these
elements identified with a
product or company
Copyright – exclusive legal
right given to the original
authors of literary, musical,
artistic, dramatic and other
works of authorship for a
fixed number of years.
Patent – An exclusive right
given to an inventor for a
limited period of time to
exclude others from making,
using, selling or importing
an innovation.
Technology – the application
of mental and physical
effort that produce virtual
tools to solve real world
problems
Licensing rights – The formal
or official permission
according to specific terms
and conditions set out in a
contract. The rights are
valid for a particular period
of time.
Franchise – A contractual
right to distribute certain
products or services or use
certain trademarks in a
certain geographical region
such as a chain store
franchise.
Goodwill – The premium an
entity pays to obtain the net
assets of another company

7. • To recognize an item as an intangible
asset, the item must meet:
a) The definition of an intangible asset
b) The recognition criteria
Initial Recognition of
Intangible Assets

8. Initial Recognition of Intangible Assets
The definition of an intangible asset – it is an identifiable non-monetary asset
Intangible assets should be distinguishable from goodwill
Goodwill can only be recognized when there is a business combination and it
represents the future economic benefits arising from other assets acquired on a
business combination that are not individually identified and separately
recognized.

9. Initial Recognition of Intangible Assets
An intangible asset can be
recognized as an asset if:
It is separable – the
intangible asset can be
separated or divided from
the entity
It arises from contractual
or other legal rights –
regardless of whether
those rights are
transferable or separable
from an entity or from
other rights and obligations

10. Internally
Generated
Intangibles
Internally generated intangible assets include
scientific or technological knowledge, market
research, intellectual property and brand
names.
Research and development costs are also
internally generated intangible assets
Intangible assets that may arise from research
and development expenditure include patents,
computer software, copyrights and trademarks.
Entities will expense research cost and not
capitalize it as it is not probable that future
economic benefits that are attributable to the
asset will flow to the entity

11. Initial
Measurement
of Intangible
Assets
The cost of such an intangible asset
comprises:
Its purchase price, including import
duties and non-refundable purchase
taxes, after deducting trade discounts
and rebates
Any directly attributable cost of
preparing the asset for its intended
use

12. Initial Measurement of Intangible Assets
Examples of directly attributable costs are:
Costs of employee benefits, as defined in MFRS119 arising
directly from bringing the asset to its working conditions
Professional fees, arising directly from bringing the asset to
its working conditions
Costs of testing whether the asset is functioning properly

13. • Examples of expenditures that are not
part of the cost of an intangible asset
are:
Costs 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 cost of staff training
Administration costs and other general
overhead costs
Initial Measurement of
Intangible Asset

14. Useful life on
IA – Finite
Life
Finite life – there is foreseeable limit to
the period over which an IA is expected to
generate net cash inflows for the entity
Accounting treatment – amortize the IA on
a systematic basis over its useful life less
any residual value usually via a straight
line method. The amortization charge for
each period is normally recognized in the
statement of profit and loss

15. Useful life of
IA – Indefinite
Life
Indefinite life – There is no
foreseeable limit to the period over
which an IA is expected to generate
net cash inflows for the entity
Accounting treatment - Do not
amortize the IA. Review at each
reporting period to determine
whether events and circumstances
continue to support an indefinite
useful life assessment for the asset

16. Presentation of Intangible Assets in the
Financial Statements

17. Thank You 