PAS 38 prescribes accounting and disclosure for intangible assets other than those specifically dealt with other

standard
SCOPE: All intangible assets except:
1 Goodwill acquired in a business combination (PFRS3) Unidentifiable (Cannot be sold, transferred, licensed,
rented or exchanged separately)
2 Financial Assets (PFRS 9, PAS32, PFRS7) Monetary Assets- another standard applies
3 Rights arising from exploration and evaluation assets (PFRS6) Another standard applies
4 Expenditure on the development and extraction of non- Another standard applies
regenerative resources
5 Intangible assets held for sale in the ordinary course of business Another standard applies
(PAS2)
6 Deferred Taxes (PAS12) Another standard applies
7 Leases (PAS 17) Another standard applies
8 Assets arising from employee benefits (PAS17) Another standard applies
9 Deferred acquisition cost and intangible assets, arising from an Another standard applies
insurer’s contractual rights under insurance contract (PFRS4)
10 Non-current intangible assets held for sale (PFRS 5) Another standard applies
Intangible asset is identifiable non-monetary asset without physical substance
ESSENTIAL CRITERIA
1.Identifiability – it must be distinguished from goodwill
a.Separable- capable of being separated or divided from entity and sold, transferred, licensed, rented, or exchanged
b.Arises from contractual or other legal rights
2.Control – power to obtain the future economic benefit flowing from the underlying resource and to restrict the access of others to those
benefits
a.Legal rights
b.Market and technical knowledge
Note: Employee’s skills, managerial or technical talents, market share and customer loyalty are not intangible assets unless protected by
legal rights or other ways of control
3.Future Economic Benefit-may include revenue, cost savings or other benefits resulting from the use of the asset by the entity

What if the asset has both intangible and tangible elements?

Guide:
I. Which element is more significant?
II. Intangible component is integral part of the asset as a whole- PPE
III. Operating system and computer
IV. Intangible component is not integral part as a whole – Intangible asset
V. Application software and computer

FINANCIAL STATEMNT PREPARATION

o Intangible assets accounted for under PAS38 shall be presented separately from Goodwill
o One line item – Intangible Assets or Other Intangible Assets in SFP
o Breakdown of Intangible Assets is presented in the Notes to Financial Statement

RECOGNITION
It shall be recognized if the management can demonstrate that:
a. Meets the definition of intangible assets
b. Meets the Asset Recognition Criteria

INITIAL MEASUREMENT
An intangible asset shall be measured initially at COST. Measurement of cost depends upon the mode of acquisition:
Separate Acquisition Purchase Price, Import Duties, Non-Refundable Taxes after deducting trade discounts and
rebates

Direct Attributable Costs

Acquisition as part of business combination Fair Value at the date of Acquisition including R&D acquired (in-process R &D project, meets
the definition of an asset, identifiable, separable or arises from contractual or other legal rights)

Basis of FV:
 Quoted market Price/ Active Market
 No Active Market/ Amount the entity would have paid for the asset at the acquisition
date in an arm’s length transaction (Best information available.
 PV of future cash flows/ No active market
Acquisition by way of government grant Fair Value
Nominal Amount plus direct cost
Exchanges With commercial substance
1. FV of Asset Given up (Plus cash paid or minus cash received)
2. FV of Asset received
3. CA of Asset Given up (Plus cash paid or minus cash received)
 Lack commercial substance
1. CA of Asset Given up (Plus cash paid or minus cash received)

Internal Generation Research – expensed outright (Generally)

Exemption: R &D acquired in business combination

Development- Expense outright (Generally)

Unless: All conditions are met (Capitalized)

1.Technical Feasibility
2. Intention to complete
3. Ability to Use or Sell
4. Probable Future Economic Benefit
5. Availability of adequate resources to complete the development and to use or sell
6. Measure reliably

R&D Cost – expense (Do not Qualify for Recognition) it includes only cost incurred before
commercial production is feasible

RESEARCH DEVELOPMENT NOT R&D

Searching for new knowledge
Selecting from among identified possible
alternatives
Design, construction and testing of pre-
production prototypes or models
Design of tools, jigs. Molds and dies
involving new technology
Design, construction, and operation of a
pilot plant that is not of a scale
economically for commercial production
Design, construction and testing of a chosen
alternative for new or improved materials
Revising designs for flaws in the prototype
model
Cost incurred during commercial production
Trouble shooting for commercial production
Periodic design changes to existing products
Modification of design for a specific customer
Engineering follow through and quality control
during commercial production
Marketing research to study consumer taste

ITEMS OF PPE USED IN R&D ACTIVITIES

The cost of PPE acquired and used in R&D activities is included in R&D Expenses
Item of PPE which has an alternative use, the cost of PPE is Depreciation Expense is included in R&D expense
capitalized and depreciated
Item of PPE has no alternative use All cost of the PPE is expensed as R&D expense

ITEMS not recognized as Intangible Assets

Internally Generated brands, mastheads, publishing titles, customer lists and items in similar substance
Internally Generated Goodwill not recognized as asset

REVIEW: PAS41
Agriculture – farming or the process of producing crops and raising livestock
BIOLOGICAL ASSET Living animal and plants except bearer plants
AGRICULTURAL PRODUCE Harvested produce ( at the point of harvest)
SCOPE:
Biological Asset Except Bearer Plants
Agricultural Produces at the point of harvest
Unconditional Gov Grants related to biological asset measured at FVLCTS
EXERCISE
Sheep Wool Trees in Felled Trees Maize Plants Clothing Lumber Milk
Timber
planation
Pigs Carcass Roasted Sugar Cotton Plants Harvested Peanut Plants Harvested
Peanuts Cotton Peanuts
Sugarcane Harvested Tobacco Picked Tea Bushes Oil Palm Dairy Cattle Picked
Cane Plant Leaves Grapes
Cured Yarn Harvested Rubber Trees Grape Vines Tea Picked Fruits Fruit Trees
Tobacco latex
carpet Wine Logs Processed Wheat Plants Palm Oil Cheese Bean plants
Fruits
Sausages Cured ham

Biological Asset
Agricultural produced
 PPE
Inventories
Agricultural Activity- Management by an entity of the biological transformation and harvest of biological assets for sale or for conversion into
agricultural produce or additional biological assets.
Raising Livestock Fishing in the sea
Floriculture Picking fruits naturally bears by the tree
Hunting Aquaculture
Cultivating Orchard Plantations
Features of Agricultural Activities:
1.Capability to change
2.Management of change
3.Measurement of change

Biological transformation
I. Asset changes:
a.Growth
b.Procreation
c.Degeneration
II. Production of agricultural produce

RECOGNITION
1.Controls the asset as a result of past event
2.Meets the Asset Recognition Criteria

MEASUREMENT: Initial – FVLCTS Subsequent FVLCTS

Agricultural Produce- FVLCTS at the point of harvest

Agricultural Produce- after the point of harvest (PAS 2)

How to measure FVLCTS?

FV- in an active market or principal market
If the location of the asset is the characteristic of the biological asset deduct any transportation cost

Cost to sell includes:

1.Commission to brokers
2.Levies and commodity exchanges
3.Transfer taxes and duties
Market A Market B
Market price 150 140
Cost to Sell 20 10
Transportation Cost 10 10
Contract Price 100 100
Historcal cost 90 90
FV 150-10=140 140-10=130
FVLCTS 140-20=120 130-10=120

Fair Value cannot be measure reliably on initial recognition – measure at cost and subsequently measured at cost less accumulated depreciation
and accumulated impairment losses. Once the Fair Value can be reliably estimated, the biological asset is measured at FVLCTS.

ILLUSTRATION SAMPLES:
1.On January 1, 20x1, Dan Co. had one, 1-year old animal with a carrying amount of P2,000. On March 31, Dan Co. acquired another animal,
aged 2.25 years old, for P4,000, the fair value less costs of the animal on this date. One animal was born on October 1, 20x1. The fair value
less costs to sell of the newborn animal on this date is P1000. Dan Co. determined the following fair values less costs to sell on December 31,
20x1:
New born P1200 1 year old P2,400 2.25 years old P6,000
.25 years old P1600 2 years old P4,800 3 years old P7,000
Compute for the following:
1. Total gain (loss) from the change in FVLCS during the period 7400
2. Change in FVLCS due to price change 2600
3. Change in FVLCS due to physical change 4,800

CHANGES IN FV DUE TO PRICE CHANGES

AGE 1 YR OLD 2400 2.25 YR 6,000 NEW BORN 1200
AGE 1 YR OLD 2,000 2.25 YR 4,000 NEW BORN 1,000
TOTAL 400 2,000 200
QTY 1 1 1
CHANGES DUE TO PRICE 400 2,000 200 = 2,600
CHANGES DUE TO PHYSICAL CHANGE
FV @ DEC 31 FV@ DEC 31 FV @ DEC 31 TOTAL
2 YRS OLD 4800 3 YRS 7,000 .25 1,600
1 YR OLD 2400 2.25 YRS 6,000 NEW BORN 1,200
2400 1,000 400
QTY 1 1 1
CHANGE 2, 400 1,000 400 3800
DUE
PHSYCAL
FVLCTS AT THE DATE OF BIRTH 1000 + 3800 = 4,800
TOTAL CHANGE IN FVLCTS = 2600 +4800= 7400

Biological asset attached to land – may not have a separate market but an active market may exist for the combined asset as a package (Lump-
sum). If the FV of land and land improvement is available, deduct the total amount from the FV of the combined assets = FV of the biological
asset. Note: Agricultural land = PPE= PAS16

GOVERNMENT GRANTS
Government Grant in a form of biological assets measured at FVLCTS.
Recognition:
1.Unconditional = When it becomes receivable
2.Conditional = recognized in PL when the attached conditions are met
3.Conditional but the terms of the grant allow part of it to be retained according to the time that has lapsed- potion of the grant is recognized in
PL as time passes.

PAS40
LAND OR BUILDING, part or both, held by the owner or by lessee under finance lease to earn rentals (lease out to one or more operating
lease) or for capital appreciation (including land with undetermined use)

Partly investment property / partly owner occupied

o Can be sold separately- account separately
o Cannot be sold separately- insignificant portion is owner occupied- investment property
Ancillary services to occupants
o Ancillary services is Insignificant to the whole arrangement- investment property
Consolidated FS – PPE
Individual FS – Investment Property

Measurement- @Cost plus transaction cost if there’s any

Measurement Depend on the mode of acquisition
1. Deferred Settlement- CPE
2. Held under finance lease- lower of FV of the property or PV of Minimum Lease Payment
3. Exchange- FV hierarchy ( With Commercial or Lacks Commercial Substance)
Subsequent Measurement
Fair Value Model Cost Model
@FV with changes in FV recognized at P&L Cost Less Accumulated Depreciation and accumulated
impairment losses
If the property interest in operating lease is classified as
investment property
FV for measurement and Disclosure FV for disclosure only
Not Depreciated

Transfers – only when there is a change in use

COST MODEL FAIR VALUE
Do not change the CA transferred and do not change the cost FV to owner occupied/inventory – deemed cost shall be the FV
of the property at the date of change in use

Owner Occupied to Investment Property –

Depreciated property and recognize impairment loss.
Difference between FV and CA is treated as:

1. Decrease- P&L extent of the revaluation surplus

2. Increase- Reversal of impairment/ Revaluation
Surplus
 SAMPLE ILLUSTRATION:
On January 1, 20x1, BTS Company acquired an investment property and the initial cost of investment property was P10,000,000. As of
December 21, 20x2, it has a carrying value of P9,000,000 at fair value model. On December 31, 20x3, the company decided to transfer the
investment property to owner occupied property. On the date of transfer, the fair value of property is P8,000,000. What amount of gain or loss on
transfer should the company recognize on December 31, 20x3?

BTS Company owns an office building that is being leased out to various companies. Bill is required to provide security and maintenance
services under the lease contracts. The building was acquired two years ago for a total of P12,000,000. The accumulated depreciation at the
beginning of the year is P960,000. Bill uses the cost model and the straight-line method of depreciation. How much would be shown as
investment property in Bill's year-end financial statements?

On January 1, 20x1, BTS Co. acquired a building with an estimated useful life of 10 years and residual value of ₱800,000 for a total cost of
₱8,000,000. The fair value of the building on January 1, 20x1 is ₱9,600,000 while the fair value on December 31, 20x1 is ₱10,400,000.
NURTURE estimates that if the building is sold currently on December 31, 20x1, costs to sell amount to ₱400,000. NURTURE uses the
straight-line method in depreciating its PPE. BTS uses the fair value model for its investment properties. The year-end adjusting entry will
include

On December 31, 20x1, BTS Co. decided to lease out under operating lease one of its buildings that was previously used as office space. The
building has an original cost of ₱24,000,000 and accumulated depreciation of ₱16,000,000 as of January 1, 20x1. Annual depreciation is
₱800,000. BTS Co. uses the fair value model for investment property. The fair value of the building on December 31, 20x1 is ₱12,000,000. The
entry to record the transfer of the building to investment property includes a

BTS Co. acquired a building on January 1, 20x1 for a total cost of ₱48,000,000 and classified it as investment property. PERIODIC Co. uses the
fair value model for its investment property. On January 1, 20x5, when the carrying amount of the building was ₱32,000,000, the elevator in the
building was replaced for a total cost of ₱6,400,000. It is impracticable to determine the fair value of the replaced part. The fair value of the
building on December 31, 20x5 is ₱34,400,000. How much is the loss recognized during the year?