Nguyễn Đình Hoàng Uyên

IAS 38- Intangible

Assets
1
 Objectives
2

The objective of IAS 38 is:

• accounting treatment for intangible assets
• recognise an intangible asset
• measure the carrying amount of intangible assets
• require specified disclosures about intangible assets.
 Except

IAS 38 shall be applied in accounting for intangible assets, except:

(a) intangible assets that are within the scope of another

Standard;
(b) financial assets, as defined in IAS 32 Financial
Instruments: Presentation;
(c) the recognition and measurement of exploration and
evaluation assets (see IFRS 6 Exploration for and Evaluation
of Mineral Resources); and
(d) expenditure on the development and extraction of,
minerals, oil, natural gas and similar non-regenerative
resources.
 Contents
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1. Definition of intangible asset

2. Recognition & initially measurement
3. Amortisation
4. Derecognition
5. Disclosure
1. Definition of intangible asset
5

An intangible asset is an identifiable nonmonetary asset without

physical substance; [IAS 38.8]

✓ identifiability,
An intangible asset ✓ control over a resource
Must be met ✓ existence of future economic benefits
[IAS 38.10]
 EX
6

computer software,
patents,
copyrights,
meet the definition
motion picture films,
an intangible asset
customer lists,
mortgage servicing
rights,
fishing licenses, Not meet the definition
import quotas, as an expense
franchises,
customer or supplier
relationships, customer
loyalty,
market share
marketing rights.
 Identifiability
7

Identifiability

is separable arises from contractual,

other legal rights,
separated or divided from the entity
sold, transferred, licensed, rented or exchanged

Note: goodwill: is an intangible asset, arises from business combination,

not individually identified
 Control
8

An entity controls an asset if the entity has the power

✓ to obtain the future economic benefits
✓ restricts the access of others to those benefits.
✓ legal rights.

Market and technical knowledge: may give rise to future economic

benefits;
if protected by legal rights (EX copyrights, permitted) ➔ asset

Staff: may give rise to future economic benefits; insufficient control

➔ asset
unless it is protected by legal rights to use and to obtain the future
economic benefits expected from staff ➔ asset

portfolio of customers or a market: insufficient control ➔ asset

 Future economic benefits
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revenue from the sale of products

or services
Future economic benefit include:
cost savings

other benefits resulting from the

use of the asset
 Note - Goodwill
10

-Goodwill is the most intangible of the

intangible assets
-Goodwill only occurs when a company
acquires the assets and liabilities of
another company and pays more than they
are worth.
 Goodwill
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▪ Goodwill is very different from other

intangibles because goodwill derives
from the acquisition of a company
▪ In such an acquisition, certain assets are
acquired and certain liabilities are
assumed. The acquired assets and
liabilities are recorded on the books of
the acquiring company at fair value.
▪ Normally, the acquiring company would
only pay a purchase price equal to the
fair value of the net asset acquired.
 Goodwill
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Property: 5000
Equipment: 1000
Liability: 0

Got it? 10.000 (CU)

2. Recognition and measurement
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Initial expenditure incurred after Subsequent

measurement the initial recognition measurement
When ? Expenditure ? Revaluation model?
How ? cost model ?
Amortise ?
What ? Impairment of Assets?
2.1 Initial measurement
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When? ✓ the definition of an intangible asset

✓ the recognition criteria
✓ condition necessary for it to be capable of operating in
the manner intended by management.

How Cost

➢ separately acquired
➢ acquired in a business combination
➢ government grant
➢ exchanges of intangible assets
➢ internally generated goodwill (goodwill, another asset)
2.1 Initial measurement Recognition criteria
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a) it is probable that the expected future

economic benefits will flow to the entity; and
b) the cost of the asset can be measured reliably.

a) expected future economic benefits

b) Control
Recognise an intangible c) be identified separately
asset if: d) the cost of the asset can be measured
reliably.
 Cost of separate acquisition asset
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Include: a) its purchase price, including import duties and

non-refundable purchase taxes, after deducting trade
discounts and rebates
b) any directly attributable cost (costs of employee
benefits, professional fees, costs of testing

Not include: ➢ costs of introducing a new product

➢ costs of conducting business in a new location
or with a new class of customer
administration and other general overhead
costs.
 Example
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Brilliant Inc. acquires copyrights to the original recordings of a

famous singer. The agreement with the singer allows the
company to record and rerecord the singer for a period of five
years. During the initial six-month period of the agreement, the
singer is very sick and consequently cannot record. The studio
time that was blocked by the company had to be paid even
during the period the singer could not sing. These costs were
incurred by the company:
(a) Legal cost of acquiring the copyrights $10 million
(b) Operational loss (studio time lost, etc.) during start-up period
$ 2 million
(c) Massive advertising campaign to launch the artist $ 1 million
•Required Which of the above items is a cost that is eligible for
capitalization as an intangible asset?
 Cost of intangible assets acquired in a business combination
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the cost of that intangible asset is its fair value at the acquisition date.

See IFRS 13 – Fair value measurements

IFRS 3 – Business combinations
 Cost of asset Acquisition by way of government grant
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the intangible asset and the grant at fair value at a nominal amount

See IAS 20
 Cost of Exchanged assets
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(1) Measured at fair value the asset received

(2) Or, the fair value of the asset given up
(3) or, carrying amount of the asset given up
 Cost of Internally generated goodwill
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Internally generated goodwill shall not be recognised as an asset.

IAS 38.48
 Cost of Internally generated intangible assets
2 phase
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intangible
Research phase Developement phase assets

intangible assets an intangible assets, if meet

✓ the technical feasibility of completing,
an expense ✓ intention to complete the intangible asset and
use or sell it,
✓ ability to use or sell the intangible asset,
✓ how the intangible asset will generate
probable future economic benefits (existence of
a market (to sell), usefulness of the intangible
asset (to use)
✓ the availability of adequate technical, financial
and other resources to complete the intangible
asset
✓ measure reliably the expenditure attributable
to the intangible asset during its development.
 Internally generated intangible assets
EX
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EX expenditure of research phase:

(a) activities aimed at obtaining new knowledge;

(b) the search for, evaluation and final selection of,
applications of research findings or other knowledge;
(c) the search for alternatives for materials, devices, products,
processes, systems or services; and
(d) the formulation, design, evaluation and final selection of
possible alternatives for new or improved materials, devices,
products, processes, systems or services.

➔ ➔ ➔ ➔ ➔ ???
IAS 38.56
 Internally generated intangible assets
EX
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Ex of development activities

(a)the design, construction and testing of pre-production or pre-

use prototypes and models;
(b)the design of tools, jigs, moulds and dies involving new
technology;
(c)the design, construction and operation of a pilot plant that is
not of a scale economically feasible for commercial
production; and
(d)the design, construction and testing of a chosen alternative
for new or improved materials, devices, products, processes,
systems or services.

➔ ➔ ➔ ➔ ➔ ???
IAS 38.59
 Internally generated intangible assets
EX
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Internally generated: Internally generated:

➢ brands, copyrights or
➢ mastheads, licenses or
➢ publishing titles, software.
➢ customer lists
➢ and items similar in substance
➢ start-up cost (expenditure to open a
new facility, establishing a legal
entity)
➢ expenditure on training activities. an intangible asset
expenditure on advertising and
promotional activities
➢ expenditure on relocating or
reorganising part or all of an entity
cannot be distinguished
IAS 38.62-64
an intangible asset
 Internally generated intangible assets
Cost

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 in the manner intended by management
Include: (a)costs of materials and services used or consumed in
generating the intangible asset;
(b)costs of employee benefits (as defined in IAS 19)
arising from the generation of the intangible asset;
(c) fees to register a legal right; and (d) amortisation of
patents and licences that are used to generate the
intangible asset.

Not Include: (a)selling, administrative and other general overhead

expenditure unless this expenditure can be directly
attributed to preparing the asset for use;
(b)identified inefficiencies and initial operating losses
incurred before the asset achieves planned
performance; and
(c) expenditure on training staff to operate the asset.
IAS 38.66-67 26
 Subsequent expenditure on an acquired in-process research
and development project

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in-process ✓ in-process
research
✓ Purchased in a business combination or separately
and
development ✓ Continue expenditure after the acquisition
project

Expenditure at the acquisition day:

an intangible asset
in-process
research
and an expensive
development Expenditure after the acquisition (research phase)
project

an intangible asset
(development
phase)
 Example
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An entity is developing a new production process:

• During 2007, expenditure incurred was $1,000, of which:
a) $900 was incurred before 1 Dec. 2007 and
b) $100 was incurred between 1 Dec. 2007 and 31Dec. 2007
• The entity is able to demonstrate that, at 1 Dec.2007, the production
process met the criteria for recognition as an intangible asset.
• The recoverable amount of the know-how embodied in the
process is estimated to be $500.
• During 2008, expenditure incurred is $2,000.
• At the end of 2008, the recoverable amount of the know-how
embodied in the process is estimated to be $1,900
2.2 Expenditure incurred after the initial recognition
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expenditure
Recognised as Expensive
incurred after the
Rarely, be recognised as an
initial recognition
asset.

The nature of intangible assets is no additions to such an asset

or replacements of part of it

Amortisation
Recognised as Expensive

IAS 38.20
2.2. Subsequent measurement
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Subsequent measurement

Cost model Revaluation model

CA= cost - any accumulated depreciation - CA = revalued amount

(fair value at the date of the revaluation)
accumulated impairment losses
active market
an active market no exists ➔ cost model
similar nature
 Revaluation model Increase/decrease as a result of a revaluation

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other comprehensive income

(revaluation surplus)
Increase = FV > CA or
profit or loss Reverses previously
recognised in profit or loss

profit or loss

Decrease = FV < CA or
OCI Reverses previously
(revaluation surplus) recognised in OCI

Same as IAS 16 PPE

 32
Intangible asset

Identifiable Goodwill

Separable Legal contractual

transferable separable
from the entity
 Intangible asset

Identifiable Goodwill

Finite Infinite

Amortised Not Amortised

Tested for Impairment Annually
See IAS 36 - Impairment

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 EX
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Examples Amortization
Limited Customer list; Copyright Amortize
life Franchises; Licenses
intangibles Permits; Patents
Unlimited Trademark; Franchises Do not
life Licenses; Goodwill amortize
intangibles Internet domain name
3. Amortisation
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➢ over useful life

➢ Begin when it is in the location and condition necessary
➢ Cease amortisation: classified as held for sale
or derecognised

➢ Residual value: is presumed to be zero, unless a third

party to acquire

➢ straight-line method,
➢ the diminishing balance method and
➢ the unit of production method.
4. Derecognition
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• An intangible asset shall be derecognized:

a) on disposal; or
b) when no future economic benefits are expected from its use or
disposal.
• The gain or loss arising from the derecognition shall be determined as
the difference between the net disposal proceeds, if any, and the
carrying amount
• It shall be recognized in profit or loss when the asset is derecognized
(unless IAS 17 Leases requires otherwise on a sale and leaseback).
• Gains shall not be classified as revenue.
5. Disclosure
37

• IAS 38 introduces some additional disclosure requirements

• Changes are mainly amendments for the changes on finite and
indefinite useful life
• Disclosures can be divided into disclosures for:
– General aspects for all intangible assets
– Intangible assets measured at revalued amount
– Research and development expenditure
– Other information