PAS 38

Intangible
Asset

Group 3
 Intangible Assets

● Identifiable, non-monetary and without

physical substance
● Controlled by the entity as a result from
past events
● Future economic benefits are expected
● It must have the three essential criteria
 Essential criteria in the definition of intangible assets

1. Identifiability – separable or arises from

contractual rights
2. Control – power to obtain (or restrict others from
obtaining) the economic benefits from an asset.
3. Future economic benefits – may include
revenue from the sale of products or services,
cost savings, or other benefits resulting from the
use of the asset by the entity.
 Recognition of an
intangible assets

● It is probable that future economic benefits

attributable to the asset will flow to the entity
● The cost of the intangible asset can be measured
reliably
•Internally generated brand, masthead and other item
similar in substance are not recognized as assets
– Instead they are components of internally generated goodwill
and expensed when incurred
 Initial Measurement
of an intangible assets

● Intangible assets are initially measured at cost

● If the intangible asset is acquired separately,
the cost comprises of
– Purchase price
– Import duties and nonrefundable purchase tax
– Directly attributable costs of preparing the asset for
the intended use
 Costs which are not capitalizable

A. New product or service including advertising and

promotional activity
B. Conducting business in new location or new class
of customer, includes staff training
C. Administration and overhead cost
D. cost of unused asset
E. Initial operating loss
(all cost are expensed immediately)
 Internally Generated intangible
assets

● Included Costs
● Directly attributable cost such as :
– Cost of materials used in generating asset

– Cost of employee benefit in generating of asset

– Registration of legal right

– Amortization of patent used to generate asset

 Internally Generated
intangible assets

● Not included costs

– Selling, administrative and other general
overhead
– Clearly identified inefficiency and initial
operating loss
– Expenditure on training staff to operate
asset
 Recognition as Expense

● Expenses that does not meet recognition criteria

A. Start up costs
– Organizational costs such as legal and secretarial cost
– Preopening costs for new facilities or pre-operating costs for
operation or new products
B. Training cost
C. Advertising cost
D. Business relocation or reorganization
 Subsequent Cost

● Recognized as expense
● Capitalized to the cost of asset only if:

A. It is probable that future economic

benefits specifically from subsequent cost
B. Subsequent cost can be measured
reliably
 Identifiable Intangible Assets

● If it is transferred through purchase with transfer

of legal rights
● It can be licensed, rented or sold separately
Example:
 Patent
 Copyright  Customer list
 Franchise  Computer software
 Trademark/Tradena  Rights and licenses
me
 Unidentifiable Intangible
Assets

● If it cannot be sold, transferred, rented

or licensed separately
● Inherent to the continuing business
● Can only be identified with the entity
as a whole
● Describes a goodwill
 Measurement After
Recognition
● Cost Model
Cost less accumulated amortization and
impairment loss
● Revaluation Model
Carried at revalued amount less subsequent
amortization and accumulated depreciation loss
Revalued amount is based
Fair value at date of revaluation
Reference to an active market
 Amortization of Intangible
Asset

● Intangible assets with limited life

are amortized over time or through
useful life
● Assets with indefinite life are not
amortized but tested for impairment
at least annually.
 Impairment of Intangible Asset

● Finite useful life

– Tested whenever there is indication at end of period
● Indefinite useful life
– Tested at least annually or if indication of
impairment
● Impairment loss
– Recoverable amount is less than carrying
amount
 Amortization
● Cost of intangible asset less residual value
● Amortization Period
– When assets is available for use until
derecognized
● Useful life
– Asset is assessed if definite of indefinite
● Definite – it is expressed in terms of years or number of
units to be produced
● Indefinite – assets has no foreseeable limit, no legal,
contractual or other factors to determine useful life
 Factors of Useful Life
• Obsolescence ( Technical, • Stability of asset in
commercial, etc.) industry
• Expected action by • Maintenance required to
competitors obtain expected future
• Usage of asset by entity economic benefits
• Life cycle of asset • Useful life of assets
related
• Period of control and legal
or similar limits( expiry
 Residual Value

● Residual value is presumed zero, except:

– Intangible asset will be bought after useful life
– If there is an active market, residual value can
be measured
● Residual value is reviewed each financial
year-end
● Change in residual value is accounted as
change in accounting estimate