Group Finance

Date of Approval: November 2015

Approved by: Kevin Dangerfield

Policy Owner: Group Accounting Manager

Next review date: December 2016

Version No. 2015 V1

Software and other intangible assets

Purpose

This manual covers the treatment of all intangible assets, except for items which have specific
manuals:
• goodwill and intangible assets arising on a business combination;
• research and development costs;
• costs associated with dismantling, removing and restoring the site of property, plant and
equipment (see accounting manual on “Property, plant and equipment”).

1 Definition

1.1 An intangible asset is an identifiable non-monetary asset without physical substance. An

asset is a resource:
• controlled by an enterprise as a result of past events; and
• from which future economic benefits are expected to flow to the enterprise.

2 Software and web site development costs

2.1 Software is considered integral to a piece of equipment where the equipment cannot
operate without that software, for example software for a computer-controlled machine tool.
Such software will be recognised as part of the cost of the equipment.

2.2 All other software is recognised as an intangible asset.

2.3 Purchased software is capitalised. Costs incurred in developing software and web-site
development costs are treated as development costs and capitalised if they meet the

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 capitalisation conditions for research and development given in the accounting manual on
“Research and development”.

2.4 To avoid excessive documentation for low-value items, any software development with a
value under £1,000 will be assumed not to meet the conditions above and will be
expensed.

3 Other internally-generated intangible assets

3.1 Items which specifically cannot be capitalised and must be expensed include:-
• expenditure on advertising, promotion, brands, mastheads, publishing titles and
similar items;
• customer lists (unless we have some control over the customer’s right to end a
service, such as a long-term service contract);
• business start-up costs, relocation or reorganisation costs;
• training;
• internally-generated goodwill.

3.2 Other intangible assets must be capitalised if they meet the capitalisation conditions for
research and development.

3.3 If the assets are acquired either by direct purchase or as part of the acquisition of a
business, then there is more possibility to recognise such assets. However, given the
subjective nature of this decision, any capitalisation of other intangible assets must be
agreed in advance with the MBU Controller and Director of Finance.
3.4 Intangible assets expensed in previous years may not be capitalised retrospectively, unless
instructed by Director of Finance.

4 Amortisation and impairment

4.1 The useful economic life of intangible assets should be estimated, giving due regard to
obsolescence through technological or market changes. In estimating asset lives,
management must use their best judgement as to the period over which the business will
derive economic benefits from that asset, in the light of past experience and industry
knowledge. The over-riding principle is prudence.

4.2 For software the asset lives must not exceed:-

• 10 years for global EDP systems (SAP, Symix);
• 3 years for other software.
For the current JDE implementation being undertaken by a number of sites, it has been
decided from a Group perspective that licence and implementation costs should be written
off over 7 (SEVEN) years.

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Morgan Advanced Materials plc. Registered in England & Wales at Quadrant, 55-57 High Street, Windsor, Berkshire SL4 1LP UK Company No. 286773
4.3 The asset life of any other intangible asset will be determined in conjunction with the
Director of Finance.

4.4 All intangible assets must be amortised from the month following the date of capitalisation.

4.5 As with other fixed assets, intangible assets are subject to impairment testing. If a
subsidiary believes an intangible asset has been impaired then they must notify the Director
of Finance, who will decide whether and how such testing will be undertaken.

5 Disclosure

5.1 The financial statements should disclose the following for each class of intangible asset,
distinguishing between internally generated intangible assets and other intangible assets:

5.1.1 the gross carrying amount and the accumulated amortisation (aggregated with
accumulated impairment losses) at the beginning and end of the period and a reconciliation
of the movements split as shown below (this is equivalent to the disclosure requirements for
tangible fixed assets):
• additions, indicating separately those from internal development and through
business combinations;
• retirements and disposals;
• revaluations and related impairment losses/reversals;
• amounts recorded in the income statement during the period (separating impairment
losses, reversals and amortisation);
• other changes in the carrying amount during the period;

5.1.2 the amortisation methods and useful lives or the amortisation rates used;

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Morgan Advanced Materials plc. Registered in England & Wales at Quadrant, 55-57 High Street, Windsor, Berkshire SL4 1LP UK Company No. 286773
Appendix 1

Example of disclosure

Opening purchased software balances of 600, fully amortised, were retired during the year. Two
pieces of software are capitalised mid-way through the year as intangible assets:
• Software A purchased for 3,000;
• Software B costing 6,000 to develop (meeting the requirements for capitalisation).
The life of the software is estimated at 3 years and the amortisation is taken as part of the
depreciation charge.

Paragraph Disclosure
5.1.1 Internally- Other
Software generated
Cost
Opening - 600
Additions 6,000 3,000
Retirements - (600)
Closing 6,000 3,000

Amortisation
Opening 600
Amortisation 1,000 500
Retirements - (600)
Closing 1,000 500

5.1.2 Software is amortised on a straight-line method over 3 years.

5.1.3 Software amortisation is included as part of the depreciation
charge.

References

This manual is designed to be consistent with IAS 38 Intangible Assets and all other Group
policies/manuals issued. Any apparent conflict must be referred to the Director of Finance for
clarification.

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Morgan Advanced Materials plc. Registered in England & Wales at Quadrant, 55-57 High Street, Windsor, Berkshire SL4 1LP UK Company No. 286773