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.

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 Intangible Assets 

• Intangible Assets are identifiable non-

monetary assets without physical
substance.

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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
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 Examples of Intangible assets
• Computer software
• Patents
• Copyrights
• Franchise
• Motion picture films
• Trademarks or brand names
• Licenses
• Acquired import quotas
• Customer lists

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

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 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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 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

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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.
 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.

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 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.
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 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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Z.B.Millan
 END

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