CORPORATE REPORTING

MFRS138 –
Intangible
assets
Dayana Mastura, FCCA (UK),
CA (M)
Learning outcomes
• Objective of providing information on intangible assets
• Definition of intangible assets
• Types of intangible assets
• Initial recognition of intangible assets
• Internally generated intangibles
• Initial measurement of intangible assets
• Useful life of intangible assets
• Presentation of intangible assets in financial statements
 Some entities have assets which have physical
substance whereas some assets have no
physical substance.

Assets with physical substance and are

expected to be used for more than one year
may be classified as property, plant and
Intangible equipment.

assets On the other hand if the assets have no

physical substance they may be classified as
intangible.

MFRS138 sets out the accounting treatment for

intangible assets including the recognition
criteria, measurement of intangible assets and
disclosure requirements
 Prospective investors are interested to know how an
entity creates, manages and values its intangible assets.

Information on the intangible assets allows the users of

financial statements to anticipate possible developments

Objective of
to the entity’s financial position in the future.

providing It explains the entity’s competitive advantages which

should generate future economic benefits in the form of
information on future revenue.

Intangible Assets
Information on intangible assets can improve visibility
over. New business plan announced by the entity.

Higher visibility over entity’s perpective will assist the

entity to obtain funds in financing its operations with a
lower interest rate and better access to credit facilities
Definition of
Intangible Assets

• MFRS138 defines
intangible asset as
an identifiable non-
monetary asset
without physical
substance
 Trademark – a special name,
word, phrase, logo, symbol,
design, image, slogan or a
combination of these
elements identified with a
product or company
Copyright – exclusive legal
right given to the original
authors of literary, musical,
artistic, dramatic and other
works of authorship for a
fixed number of years.

Patent – An exclusive right

Technology – the application
given to an inventor for a

Types of
of mental and physical
limited period of time to
effort that produce virtual
exclude others from making,
tools to solve real world
using, selling or importing
problems
an innovation.

Intangible Licensing rights – The formal Franchise – A contractual

Assets
or official permission
according to specific terms
and conditions set out in a
contract. The rights are
valid for a particular period
of time.
right to distribute certain
products or services or use
certain trademarks in a
certain geographical region
such as a chain store
franchise.

Goodwill – The premium an

entity pays to obtain the
net assets of another
company
Initial Recognition of
Intangible Assets
• To recognize an item as an intangible
asset, the item must meet:
a) The definition of an intangible asset
b) The recognition criteria
Initial Recognition of Intangible Assets

The definition of an intangible asset – it is an identifiable non-monetary asset

Intangible assets should be distinguishable from goodwill

Goodwill can only be recognized when there is a business combination and it represents the
future economic benefits arising from other assets acquired on a business combination that are
not individually identified and separately recognized.
Initial Recognition of Intangible Assets

It arises from contractual

or other legal rights –
It is separable – the regardless of whether
An intangible asset can be intangible asset can be those rights are
recognized as an asset if: separated or divided from transferable or separable
the entity from an entity or from
other rights and
obligations
 Internally generated intangible assets include
scientific or technological knowledge, market
research, intellectual property and brand
names.

Research and development costs are also

Internally internally generated intangible assets

Generated
Intangibles Intangible assets that may arise from research
and development expenditure include patents,
computer software, copyrights and trademarks.

Entities will expense research cost and not

capitalize it as it is not probable that future
economic benefits that are attributable to the
asset will flow to the entity
 The cost of such an intangible asset
comprises:

Initial
Measurement Its purchase price, including import
duties and non-refundable purchase
of Intangible taxes, after deducting trade discounts
and rebates
Assets
Any directly attributable cost of
preparing the asset for its intended
use
Initial Measurement of Intangible Assets

Examples of directly attributable costs are:

Costs of employee benefits, as defined in MFRS119 arising directly

from bringing the asset to its working conditions

Professional fees, arising directly from bringing the asset to its

working conditions

Costs of testing whether the asset is functioning properly

Initial Measurement of
Intangible Asset
• Examples of expenditures that are not
part of the cost of an intangible asset
are:
Costs of introducing a new product or
service including costs of advertising
and promotional activities
Costs of conducting business in a new
location, or with a new class of
customer including cost of staff training
Administration costs and other general
overhead costs
 Finite life – there is foreseeable limit to
the period over which an IA is expected to

Useful life on
generate net cash inflows for the entity

IA – Finite
Life Accounting treatment – amortize the IA on
a systematic basis over its useful life less
any residual value usually via a straight
line method. The amortization charge for
each period is normally recognized in the
statement of profit and loss
 Indefinite life – There is no
foreseeable limit to the period
over which an IA is expected to
generate net cash inflows for the
Useful life of entity
IA – Indefinite
Life Accounting treatment - Do not
amortize the IA. Review at each
reporting period to determine
whether events and circumstances
continue to support an indefinite
useful life assessment for the asset
Presentation of Intangible Assets in the
Financial Statements
Thank You 