INTANGIBLE ASSETS – PAS 38

PATENT
 Total Costs Intangible Operating Explanation
incurred Asset Expenses
Cost
R&D 1,600,000 1,600,000 Still under developing
stage
Legal & 300,000 300,000 Capitalizable cost of
registration Patent
fees
Legal fees for 450,000 450,000 Not related to licensing
defending
patent
Total Costs 2,350,000 300,000 2,050,000
PATENT VALUATION
IF ACQUIRED:
▪ Purchase price
▪ Import duties
▪ Non-refundable purchase taxes
▪ Directly attributable costs

IF INTERNALLY DEVELOPED:
▪ Licensing
▪ Other related legal fees
▪ R&D if patent is at FULL MANUFACTURING STAGE
▪ R&D shall be expensed as incurred BEFORE Full
manufacturing stage
PATENT
 Amortization at Dec 31, 2017:
Carrying value over new legal and useful life

Carrying value: Unamortized patent cost

(5,400,000 / 6 yrs x 4) 3,600,000

New legal and useful life 20yrs

Amortization expense 180,000

The new patent pertains to the improvement of the existing patent.

The improvement allows the patent to extend its usability.
PATENT AMORTIZATION
➢ Legal life 20 years
➢ Cannot be renewed, but can be extended by a new patent for improvements
and changes

IF ACQUIRED:
▪ Amortized over legal or remaining useful life, whichever is
SHORTER

IF COMPETITIVE, protecting an existing patent:

▪ Amortized over remaining life of old or existing patent

IF INTERNALLY DEVELOPED:
▪ Amortized over legal or remaining useful life, whichever is
SHORTER
PATENT
PATENT VALUATION
▪ R&D shall be expensed as incurred BEFORE Full manufacturing
stage

PATENT R&D Costs

Special Development of 2,000,000 2,000,000
Equipment new machine

Drawings for Patent 30,000 30,000

patent office registration
Testing costs Testing of 300,000 300,000
of prototypes samples
Patent fees Patent fees 100,000 100,000
Research R&D 350,000 350,000
salaries &
benefits
Legal & filing Patent fees 250,000 250,000
fees
TOTALS 380,000 2,650,000
PATENT VALUATION
IF ACQUIRED:
▪ Purchase price
▪ Import duties
▪ Non-refundable purchase taxes
▪ Directly attributable costs

IF INTERNALLY DEVELOPED:
▪ Licensing
▪ Other related legal fees
▪ R&D if patent is at FULL MANUFACTURING STAGE
▪ R&D shall be expensed as incurred BEFORE Full
manufacturing stage
 GOODWILL

RESIDUAL APPROACH:
Goodwill is Purchase price over FV of Net Assets

Purchase price P 6,000,000

FV of Net Assets
Carrying value (P5,000,000-P2,000,000) P 3,000,000
Inc in FV of land 200,000 3,200,000

GOODWILL P 2,800,000
GOODWILL, INITIAL MEASUREMENT

Residual Direct
Approach Approach
Net assets are measured Based on the future
at Fair Value earnings of the entity
Purchase price less Net It believes that future
Assets acquired at Fair earnings exceeds normal
Value earnings
LEASEHOLD IMPROVEMENT
 LEASEHOLD IMPROVEMENT &
AMORTIZATION

Leasehold improvements are NON-MOVABLE improvements made

by the tenant to the leased property.

Amortization: Over Lease term or useful life whichever is shorter.

Leasehold PPE
Improvement
General 1,200,000 1,200,000
improvements
Furniture & 690,000 690,000
Fixtures
Movable 420,000 420,000
assembly line
TOTAL COSTS 2,310,000 1,200,000 1,110,000
Lease term 8yrs
Annual 150,000
Amortization
COMPUTER SOFTWARE FOR SALE, INTERNALLY DEVELOPED
 Software Inventory Expense

Product Packaging Sales activity 1,000,000

Completion of Exploring 500,000

detailed program
design
Coding & Testing Pre- 250,000
for Technological Technological
Feasibility feasibility
Costs of producing After 2,000,000
Product masters Technological
for training feasibility
materials
Duplication of Sales activitiy 140,000
product masters for
training materials
Other coding costs After 200,000
after technological Technological
feasibility feasibility
Other testing costs After 300,000
after technological Technological
feasibility feasibility
TOTALS 2,500,000 1,140,000 750,000
COMPUTER SOFTWARE FOR SALE, INTERNALLY DEVELOPED

• all expenses incurred in the research phase would be expensed and all all
expenses incurred before technological feasibility for the product has been
established should be expensed.

• Costs incurred after Technological feasibility has been established is

capitalized. The reporting entity would have to demonstrate both
technological feasibility and a probability of its commercial success.
Technological feasibility would be established if the entity has completed a
detailed program design or working model. The entity should have
completed the planning, designing, coding, and testing activities and
established that the product can be successfully produced.

• Intention and ability to use or sell the program or actions to obtain copyrights
or patents

Capitalize Software Development Costs - Wall Street Prep