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A ACCOUNTANTS

IAS 38
Intangible Assets - ReCAP
-
Corporate Reporting 2021
Ramanathan AMN Thiagarajan
Initial
nitial recognition
recognifo
Intangible Asset (IA) - an identifiable non-monetary asset without physical substance'

Recognise an IA if all the following criteria are met: Identifiable if it:

• Identifiable
1. Is separable
ea (capable of being
• Controlled by the entity
separated and sold, transferred,
• Will generate future economic benefits
licensed, rented, or exchanged,
• Cost can be measured reliably
either individually or as part of a
package); or
• Initially recognised at cost
2. It arises from contractual or
• Subsequent recognition : Cost (Cost – Acc.
Amortisation – Impairment) or Revaluation Model other legal rights.
(FV – Acc Amortisation).
• RV model only can be applied if the IA’s FV can be
determined by reference to an active market;
Active markets are unlikely to exist for IA Should not recognise internally
generated goodwill !
Amortisation
FINITE USEFUL LIFE
amortised on a systematic basis over that life

INDEFINITE USEFUL LIFE

should not be amortised, but be subject to an annual impairment review
Research
e ch and Development
el Expenditure
pe
RESEARCH PHASE - Research expenditure cannot be recognised as an intangible asset and must be
recognized into P/L.

DEVELOPMENT – Development expenditure must be capitalized as an IA. Cease once the

development is completed.

Test your understand ing 5 - Scone

IAS38saysthat devellopment expendituremust berecognisedasan intangible During the year ended 31 December 20X 1, Scone spent $2 milllion on
asset if theentity candemonstratethat: researching and developing a new product. The entity has recognised
all $2 million as an intangible asset. A brea kdown of the expend iture is
provided bellow:
• theproject istechnicallyfeasiblle $m
Research into materi als 0.5
• theentity intends to complletetiheintangibleasset and thenuse it or sell it Market research 0.4
Employee training 0.2
• theintangibleasset will generatefutureeconomicbenefits Development activities 0.9
The expenditure on development activities was incurred evenly over
• it hasadeqiu ateresources to completetheproject the year. It was not until 1 May 2OX 1 that market research indicated
that the product was likely to be profitable. At the rep orting date, th e
prod uct development was not yet co mplete .
• it canreliablymeasuretheexpenditureon tiheproject.
1

Required:
Diiscuss the correct accounting treatment of the research and
development expenditure in the year ended 31 December 20X1.