I.

Summary

Intangible assets are recognized and accounted for in accordance with the Philippine
Financial Reporting Standards (PFRS) and Philippine Accounting Standards (PAS). Intangible
assets refer to non-physical assets that lack a physical substance but hold value for a
business or individual. They are typically long-term assets that provide economic benefits
over a period of time

Here's a quick summary of how intangible assets are treated in Philippine accounting:

Definition and Recognition: Intangible assets are defined similarly as in international

accounting standards. They are identifiable non-physical assets without physical substance,
controlled by an entity, and expected to generate future economic benefits. To be
recognized, an intangible asset must meet certain criteria, including the probability of future
economic benefits and the cost being reliably measurable.

Types of Intangible Assets: The types of intangible assets recognized in Philippine

accounting are similar to those recognized internationally. They include intellectual property
(patents, trademarks, copyrights), goodwill, customer relationships, licenses, permits,
software, and franchise rights.

Initial Recognition and Measurement: Intangible assets are initially recognized at cost,
which includes directly attributable acquisition costs and other directly related expenses,
such as legal fees, registration costs, and professional fees. If an intangible asset is acquired
through a business combination, its fair value at the acquisition date is recognized.

Subsequent Measurement: Intangible assets are generally measured at cost less

accumulated amortization and accumulated impairment losses. Amortization is the
systematic allocation of the asset's cost over its useful life. The useful life of an intangible
asset should be estimated based on factors specific to the asset, such as the expected
pattern of consumption or benefit realization.

Impairment: Intangible assets are subject to impairment tests whenever there is an

indication of impairment. Impairment occurs when the carrying amount of the asset exceeds
its recoverable amount. Recoverable amount is the higher of an asset's fair value less costs
of disposal or its value in use. If an impairment is identified, the asset's carrying amount is
reduced to its recoverable amount, and an impairment loss is recognized.

Disclosure: Philippine accounting standards require entities to disclose information about

intangible assets in their financial statements. This includes details about the nature,
carrying amounts, amortization methods, useful lives, and any impairment losses
recognized. Additional disclosures may be required for significant intangible assets or when
they have a material impact on the financial statements.

It is important for entities in the Philippines to comply with the PFRS and PAS when
recognizing, measuring, and disclosing intangible assets in their financial statements to
provide transparent and reliable information to stakeholders.
II. Problem

A&G Company acquired a patent for ₱1,000,000. The patent has a legal life of 20 years. How
should the company account for this intangible asset?

III. Solution

The company should initially recognize the patent at its acquisition cost, which is
₱1,000,000. Since the patent has a legal life of 20 years, the company should amortize the
cost over its useful life. Assuming the patent has no residual value, the annual amortization
expense would be ₱1,000,000 divided by 20 years, resulting in an expense of ₱50,000 per
year. The company should debit Amortization Expense and credit Accumulated Amortization
for this amount each year.

Answer: ₱1,000,000 / 20 years = ₱50,000 per year

IV. Most important part of Intangible assets

The most important aspect of intangible assets lies in their proper recognition,
measurement, and disclosure in accordance with the Philippine Financial Reporting
Standards (PFRS) and Philippine Accounting Standards (PAS).
Here are key points highlighting the significance of intangible assets in Philippine
accounting:
Compliance with PFRS and PAS: Intangible assets must be accounted for in compliance with
the PFRS and PAS to ensure accurate and reliable financial reporting. Adhering to these
standards ensures that the financial statements present a true and fair view of the
company's financial position, performance, and cash flows.
Recognition and Initial Measurement: The proper recognition of intangible assets is crucial
in Philippine accounting. Entities must identify and record intangible assets when they meet
the recognition criteria, such as being identifiable, controlled by the entity, and expected to
generate future economic benefits. The initial measurement of intangible assets is based on
their acquisition cost, including directly attributable costs.
Amortization and Impairment: Intangible assets with finite useful lives are typically subject
to amortization. The amortization method should be applied consistently and based on the
estimated useful life of the asset. Impairment testing is necessary to assess whether the
carrying amount of an intangible asset exceeds its recoverable amount. Any impairment loss
should be recognized and disclosed in accordance with the relevant standards.
Disclosure Requirements: Philippine accounting standards place importance on disclosure
related to intangible assets. Entities must provide sufficient and relevant information in the
financial statements about the nature, carrying amounts, useful lives, and any impairment
losses recognized. Additional disclosures may be necessary for significant intangible assets
that have a material impact on the financial statements.
Auditing and Stakeholder Confidence: Proper accounting for intangible assets enhances the
transparency and reliability of financial reporting. This is particularly important for external
auditors who review and attest to the accuracy of the financial statements. Compliance with
accounting standards regarding intangible assets helps build stakeholder confidence,
including investors, lenders, and regulatory bodies.
Business Valuation and Investment Decisions: Intangible assets significantly impact the
valuation of a company. Proper accounting for intangible assets provides a more accurate
reflection of a company's value and assists in making informed investment decisions. It
allows stakeholders to assess the value derived from intangible assets, such as intellectual
property and customer relationships.
Adhering to the accounting standards related to intangible assets in the Philippine context is
essential for businesses to ensure compliance, transparency, and accurate financial
reporting. It enables stakeholders to understand and evaluate the significance and value of
intangible assets in the company's operations and future prospects.