Government Accounting

&
Accounting for non-profit organizations

by: ZEUS VERNON B. MILLAN

 Chapter 11
Intangible Assets 

Learning Objectives
1. Define intangible assets.
2. State the recognition, and account for the
initial and subsequent measurements, of
intangible assets.

GOVT ACCTG & ACCTG FOR NPOs by:

Z.B.Millan
 Definitions.
• Active Market – is a market in which all the following
conditions exist:
– the items traded in the market are homogeneous,
– willing buyers and sellers can normally be found at
any time; and
– prices are available to the public.

Amortization – is the systematic allocation of the

depreciable amount of an intangible asset over its
useful life.
• Development – is the application of research findings or other knowledge
to a plan or design for the production of new or substantially improved
materials, devices, products, processes, systems, or services before the
start of commercial production or use.
•  Intangible Assets – are identifiable non-monetary asset without physical
substance.
•  Intangible Heritage Assets – are intangible assets which displayed the
following characteristics: 
– Their value in cultural, environmental and historical terms is unlikely to
be fully reflected in a financial value based purely on a market price;
– Legal and/or statutory obligations may impose prohibitions or severe
restrictions on disposal by sale;
– Their value may increase over time; and
– It may be difficult to estimate their useful lives, which in some cases
could be several hundred years.
• Research – is original and planned investigation undertaken with the
prospect of gaining new scientific and technical knowledge and
understanding.
 Intangible Assets 

• Intangible Assets are identifiable non-

monetary assets without physical
substance.

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Z.B.Millan
Essential elements of an intangible asset
1. Identifiability
a. separable; or
b. arises from binding arrangements

2. Control – the entity has the ability to

benefit from the intangible asset or
prevent others from benefitting from it.

3. Future economic benefits or service

potential
GOVT ACCTG & ACCTG FOR NPOs by:
Z.B.Millan
 Examples of Intangible assets
• Computer software
• Patents
• Copyrights
• Franchise
• Motion picture films
• Trademarks or brand names
• Licenses
• Acquired import quotas
• Customer lists

GOVT ACCTG & ACCTG FOR NPOs by:

Z.B.Millan
 Recognition
• An intangible asset is recognized if it meets
the definition of an intangible asset and the
recognition criteria for assets.

GOVT ACCTG & ACCTG FOR NPOs by:

Z.B.Millan
 Initial Measurement
• An intangible asset is initially measured at cost.
Mode of Acquisition Measurement of Initial Cost
a. Purchase  Purchase price plus Direct costs (including
non-refundable taxes but excluding trade
discounts and rebates).
 If payment is deferred, the cost is the cash
price equivalent.
b. Non-exchange  fair value at the acquisition date
transaction
c. Exchange  With commercial substance:
  a. FV of asset given up (+ cash paid/- cash
received).
b. FV of asset received.
c. CA of asset given up (+ cash paid/- cash
received).
 Without commercial substance: CA of
asset given up (plus cash paid/minus cash
received).
d. Entity Combination  fair value at the acquisition date

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Z.B.Millan
 Internal Generation
1. Research – undertaken to gain new knowledge.
Expenditures are recognized as expense.
2. Development – application of research findings to design
new or substantially improved products, processes, or
systems before the start of commercial production or use.
Expenditures are capitalized only if all of the following are
met:
a. Ability to use or sell
b. Intention to complete
c. Technical feasibility
d. Availability of adequate resources
e. probable future Economic benefits
f. Measured reliably

GOVT ACCTG & ACCTG FOR NPOs by:

Z.B.Millan
 Other accounting requirements
• If it is not clear whether an expenditure is a research or a
development cost, it is treated as research cost.
• Reinstatement of expenditure previously recognized as an
expense is prohibited.
• Internally generated brands, mastheads, publishing titles,
customer lists, and similar items are not recognized as intangible
assets.
• Selling, administrative and other general overhead, costs of
inefficiencies, initial operating losses, and training costs are
expensed.
• Subsequent expenditures on recognized intangible assets are
generally expensed, unless they meet the definition of an
intangible asset and the asset recognition criteria.
• The accounting for replacement of a part of an intangible asset is
the same as those of PPE and investment property.
Recognition of an Expense
• Expenditure on an intangible item
shall be recognized as an expense
when it is incurred unless it forms part
of the cost of an intangible asset that
meets the recognition criteria
 Subsequent Measurement
1. Indefinite life – not amortized but tested for
impairment at least annually.

2. Finite life – amortized using the straight line

method over a period of 2 to 10 years. The
residual value is assumed to be zero except when
the entity has the ability to sell the asset at the
end of its useful life.

GOVT ACCTG & ACCTG FOR NPOs by:

Z.B.Millan
 Impairment
• An entity is required to test for impairment an
intangible asset with indefinite useful life or an
intangible asset not yet available for use at least
annually or whenever there is an indication of
impairment.
• An entity shall test for impairment an intangible
asset with definite useful life only when an
indication of impairment exists. Indications of
impairment shall be assessed at each reporting
date.
• The accounting for impairment of intangible assets,
and reversal thereof, is the same as those of
investment property and PPE.
GOVT ACCTG & ACCTG FOR NPOs by:
Z.B.Millan
 Derecognition
• An intangible asset is derecognized when it is
disposed or when no future economic benefits or
service potential is expected from the asset.
• On derecognition, the difference between the
carrying amount and the net disposal proceeds, if
any, is recognized as gain or loss in surplus or
deficit.

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 Disclosure
• An entity shall disclose the following:
1. Whether the useful lives are indefinite or finite and, if finite, the useful lives or the
amortization rates used; 
2. The amortization method used, which is straight line method, for intangible assets
with finite useful lives;
3. The gross carrying amount, any accumulated amortization and any accumulated
impairment losses at the beginning and end of the period;
4. The line item(s) of the statement of financial performance in which any amortization
of intangible assets is included
5. A reconciliation of the carrying amount at the beginning and end of the period
6. For an intangible asset assessed as having an indefinite useful life, the carrying
amount of that asset and the reasons supporting the assessment of an indefinite
useful life
• . A description, the carrying amount, and remaining amortization period of any
individual intangible asset that is material to the entity’s financial statements;
• 8. For intangible assets acquired through a non-exchange transaction and initially
recognized at fair value
 Disclosure – cont.
• 9. The existence and carrying amounts of intangible
assets whose title is restricted and the carrying
amounts of intangible assets pledged as security for
liabilities;
• 10.The amount of contractual commitments for the
acquisition of intangible assets;
•  11. The aggregate amount of research and
development expenditure recognized as an expense
during t
 Disclosure – cont.
• 12. An entity that recognized intangible heritage assets t must apply the
following disclosure requirements:
•  
• The measurement basis used;
• The amortization method used, if any;
• The gross carrying amount;
The accumulated amortization at the end of the period, if any; and
• A reconciliation of the carrying amount at the beginning and end
of the period showing certain components thereof.
• 13. An entity is encouraged, but not required, to disclose the following
information:
• A description of any fully amortized intangible asset that is still in
use; and
• A brief description of significant intangible assets controlled by the
entity but not recognized as assets.
OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

GOVT ACCTG & ACCTG FOR NPOs by:

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 END

GOVT ACCTG & ACCTG FOR NPOs by: Z.B.Millan