INTANGIBLE ASSETS
the like shall not be recognized as Intangible Assets. Shall be
Two main characteristics of intangible assets are:
(a) they lack physical substance.
(b) they are not a financial instrument.
Essential Criteria of an Intangible Asset:
1. Identifiability
- Separable and arises from contractual or other legal rights.
2. Control
- Under the control of the entity as a result of a past event.
- Able to enjoy future economic benefit from the assets and
prevent others from enjoying the same.
3. Future Economic Benefit (FEB)
Recognition of an Intangible Asset
Recognized if the ff. conditions are met:
a. Probable that FEB attributable to the asset will flow to the
entity.
b. Cost can be measured reliably.
Initial Measurement of Intangible Assets
A. Separate Acquisition
- Acquired separately and can be measured reliably.
- The cost includes:
a. Purchase price
b. Import Duties and non-refundable purchase taxes
c. Directly attributable costs of preparing the asset for the
intended use.
- Costs of employee benefits arising directly from
bringing the asset to its working condition.
- Professional fees arising directly from bringing the
asset to its working condition.
- Testing Costs
B. Acquisition as part of Business Combination
- Cost is based on the Fair Value on the date of acquisition
C. Acquisition by Government Grant
- Maybe initially recorded at:
a. Fair Value
b. Nominal Amount or Zero, plus any expenditure directly
attributable costs of preparing the asset for the
intended use.
D. Acquisition by Exchange
- If there’s Commercial Substance:
- Fair Value of the asset given up + Cash payment
- If there’s non:
- Carrying Amount of the asset given up + Cash Payment
E. Internally Generated Intangible Asset
- All directly attributable costs necessary to create, produce,
and prepare the asset for its intended use.
- Brands, Mastheads, Publishing Titles, Customer Lists, and
expensed when incurred.
Recognition as an Expense
- Expenditure that doesn’t meet the criteria for intangible
assets.
❖ Startup Costs
❖ Training Costs
❖ Advertising and Promotional Costs
❖ Business Relocation/Reorganization Costs, etc.
Subsequent Expenditures
- Recognized as Expense.
Identifiable Intangible Assets
- Acquired thru purchase, transfer of legal right.
- Could be sold, transferred, licensed, rented, or sold
separately.
Unidentifiable Intangible Assets
- Not separable, identified with the entity as a whole,
described
as goodwill.
Classifications of Intangible Assets
a. Definite Life
- Amortized over useful/legal life, can also be impaired when
there’s an indication at the end of each period.
b. Indefinite Life
- Tested for impairment at least annually and when there’s an
indication at the end of each period.
Measurement after Recognition
a. Cost Model
- Carried at cost, less any accumulated amortization and/or
impairment loss.
b. Revaluation Model
- Carried at revalued amount, less any accumulated
amortization and/or impairment loss.
Amortization and Impairment of Intangible Assets
- Impairment Loss is when the recoverable amount exceeds
Carrying Amount.
- Recoverable is the higher of the “Fair Value less cost to sell”
and “Value in use”.
a. Definite Life (Years or No. of units to be produced)
- Amortized over useful/legal life, can also be impaired when
there’s an indication at the end of each period.
b. Indefinite Life
- Tested for impairment at least annually and when there’s an
indication at the end of each period.
Amortization Method
- Shall reflect the pattern in which the FEB are expect to be
consumed. Otherwise, straight-line.
Residual Value
- Presumed to be zero, unless:
a. Third part commits to buy the asset at the end of the useful
life;
b. There’s an active market for the asset.
Change in Amortization Method and Useful Life
- A change in accounting estimate, treated currently and
proactively.
Derecognition of an Intangible Asset
a. On disposal
b. No more FEB
- Gain/Loss from derecognition determined as the difference
between net disposal proceeds and carrying amount.
Goodwill
- Standalone can’t be bought nor sold.
- Arises when earnings exceed normal earnings from a good
relationship of the entity and the customer.
- Changes daily or continually changing.
Recognition of Goodwill
a. Developed/Internal Goodwill
- Not recorded
- Increase in Goodwill on subsequent periods after
acquisition/impairment.
b. Purchased Goodwill
- Arises when business is purchased.