INTANGIBLE ASSETS
- An intangible asset is an identifiable, non-monetary asset without
physical substance.
- An asset is a resource that is controlled by the entity as a result of
past events and from which future economic benefits are expected.
Thus, the three critical attributes of an intangible asset are:
• Identifiability
• Control (power to obtain benefits from the asset)
• Future economic benefits (such as revenues or reduced future
costs)
- An intangible asset is identifiable when it:
• Is separable (capable of being separated and sold, transferred,
licensed, rented, or exchange, either individually or together
with a related contract) or
• Arises from contractual or other legal rights, regardless of
whether those rights are transferable or separable from the
entity or from other rights and obligations.
- Examples:
• Patented technology, computer software, databases and trade
secrets
• Trademarks, trade dress, newspaper mastheads, internet
domains
• Video and audiovisual material (motion pictures, television
programmes)
• Customer lists
• Mortgage servicing rights
• Licensing, royalty and standstill agreements
• Important quotas
• Franchise agreements
• Customer and supplier relationships (including customer lists)
• Marketing rights
MODES OF ACQUISITION
• By separate purchase
• As part of a business
• By aa government grant
• By exchange oof assets
• By self-creation (internal generation)
RECOGNITION CRITERIA
- IAS 38 requires an entity to recognize an intangible asset, whether
purchased or self-created (at cost) if, and only if:
• It is probable that the future economic benefits that are
attributable to the asset will flow to the entity
• The cost of the asset can be measured reliably
- If an intangible item does not meet both the definition of and the
criteria for recognition as an intangible asset, IAS 38 requires the
expenditure on this item to be recognized as an expense when it is
incurred.
- Intangible asset are initially measured at cost.
SUBSEQUENT MEASUREMENT
- An entity must choose either the cost model or the revaluation
model each class of intangible asset
• Cost model- after initial recognition, intangible assets should be
carried at cost less accumulated amortization and impairment
losses.
• Revaluation model- intangible assets may be carried at a
revalued amount (based on fair value) less any subsequent
amortization and impairment losses only if fair value can be
determined by reference to an active market.
 CLASSIFICATION
• Indefinite life: no foreseeable limit to the period over which the
asset is expected to generate net cash inflows for the entity.
• Finite life: a limited period of benefit to the entity
INTANGIBLE ASSETS WITH FINITE LIVES
- The cost less residual value of an intangible asset with a finite useful
life should be amortized on a systematic basis over that life.
• The amortization method should reflect the pattern of benefits
• If the pattern cannot be determined reliably, amortize by the
straight-line method
• The amortization charge is recognized in profit or loss unless
another IFRS requires that it be included in the cost of another
asset.
• The amortization period should be reviewed at least annually
- The asset should be assessed for impairment in accordance with IAS
36
INTANGIBLE ASSETS WITH INDEFINITE
USEFUL LIVES
- An intangible asset with an indefinite useful life should not be
amortized
- Its useful life should be reviewed each reporting period to
determine whether events and circumstances continue to support
an indefinite useful life assessment for that asset. If they do not, the
change in the useful life assessment from indefinite to finite should
be accounted as a change in an accounting estimate.
- The asset should also be assessed for impairment in accordance
with IAS 36
SUBSEQUENT EXPENDITURES
- Due to the nature of intangible assets, subsequent expenditure will
only rarely meet the criteria for being recognized in the carrying
amount of an asset. Subsequent expenditure on brands, mastheads,
publishing titles, customer lists and similar items must always be
recognized in profit or loss as incurred.
PATENT
- Exclusive right granted by the government to an inventor enabling
him to control the manufacture, sale, or other use of invention for a
specified period of time.
- The legal life of a patent is 20 years in accordance with RA 8293 or
the intellectual code of the Philippines.
- A patent can be acquired by purchase, in which the cost comprises
the purchase price, import duties, nonrefundable purchases taxes,
and directly attributable costs.
- If internally developed, costs include licensing and related legal fees
in securing the rights.
- A patent shall be amortized over the legal life or its useful life,
whichever is shorter.
- If a competitive patent is acquired to protect an original patent, the
cost shall be amortized over the remaining life of the old patent.
TRADEMARK
- A symbol, sign, slogan, or name used to mark a product to
distinguish it from other products.
- The cost of a trademark, when purchased, includes the purchase
price and directly attributable costs.
- If internally developed, the cost of a trademark includes the
expenditures required to establish it- filing fees, registry fees, and
other costs.
- The legal life of a trademark is 10 years and renewable for periods of
10 years each. With this, an entity can classify a trademark as an
intangible asset with an indefinite useful life.
- The cost of a trademark, then, is not amortized but should be tested
for impairment.

COPYRIGHT

- Exclusive right granted by the government to the author, composer,

or artist enabling the grantee to publish, sell or otherwise benefit
from the literary, musical, or artistic work.
- The term of protection for copyright is during the life of the author
and for 50 years after death.
- A copyright should be reviewed for impairment by assessing at the
end of each reporting period whether there is an indication of PROBLEM 2
impairment.

FRANCHISE

- Under the agreement of a franchise, one party called the franchisor

grants certain rights to another party called the franchisee.
- The cost of the franchise includes the lump sum payment for the
acquisition of the franchise plus directly attributable costs necessary
for the intended use, such as legal fees and expenses incurred in
connection with the acquisition of the right.
- Others:
• Broadcasting license
• Airline rights
• Customer list database(acquired)
PROBLEM 3

PROBLEM 1
 GOODWILL
PROBLEM 4
- Goodwill arises when earnings exceed normal earnings by reason of
good name, capable staff and personnel, high credit standing,
reputation for fair dealings, reputation for superior products,
favorable location, and a list of regular customers.
- It is the most intangible of all intangible assets
- Goodwill standing alone cannot be bought and sold, and is only
identified with the entity as a whole.
- There are two kinds of goodwill- internal goodwill and purchased
goodwill.
- Internal goodwill shall not be recognized as an asset
- Purchased goodwill arises when a business is purchased. It is
recognized as an asset because it is paid for.
- Goodwill shall not be amortized because its useful life is indefinite.
However, it should be tested for impairment at least annually or
whenever there is an indication of impairment.
PROBLEM 5 - If the purchase price transferred in purchasing an entity is greater
than the fair value of identifiable net assets, the difference is
goodwill.
- If the purchase price transferred in purchasing an entity less than
the fair value of identifiable net assets, the difference is a gain on
bargain purchase, recognized in profit or loss.
PROBLEM 6