INTANGIBLE

ASSETS
(GOODWILL)
(PAS 38)
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INTANGIBLE ASSET

 Identifiable nonmonetary asset without physical substance (PAS 38, paragraph 8)

 Must be controlled by the entity as a result of past event and from which future
economic benefits are expected to flow to the entity
ESSENTIAL
CRITERIA
 IDENTIFIABILITY
CONTROL
FUTURE
ECONOMIC
BENEFITS
 IDENTIFIABILITY CONTROL
 Power of the entity to obtain
 The asset is separable (capable of being
the future economic benefits
separated from the entity and sold,
flowing from the intangible
transferred, licensed, rented or exchanged,
asset and restrict the access
either individually or together with a
of others to those benefits.
related asset or liability.
 Normally, control would
 The asset arises from contractual or other
steam from legal rights
legal rights
enforceable in a court of law.
FUTURE ECONOMIC BENEFITS
REVENUE FROM THE SALE OF PRODUCTS OR SERVICES
COST SAVINGS/OTHER BENEFITS FROM THE USE OF ASSET
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INITIAL MEASUREMENT OF
INTANGIBLE ASSET – AT COST
SEPARATE ACQUISITION
ACQUISITION AS PART OF A BUSINESS COMBINATION
ACQUISITION BY WAY OF A GOVERNMENT GRANT
ACQUISITION BY EXCHANGE
ACQUISITION BY SELF-CREATION OR INTERNAL
GENERATION
 COSTS NOT
SEPARATE ACQUISITION CAPITALIZABLE
 COST OF INTRODUCING A NEW
 Purchase price PRODUCT OF SERVICE

 Import duties & nonrefundable  COST OF CONDUCTING BUSINESS IN A

purchase taxes NEW LOCATION OR WITH A NEW
CLASS OF CUSTOMER
 Directly attributable costs of preparing
 ADMINISTRATION AND OTHER
the asset for the intended use GENERAL OVERHEAD COST
 COST INCURRED WHILE AN ASSET
Cost of employee benefit arising directly from bringing CAPABLE OF OPERATING IN A MANNER
the asset to its working condition INTENDED BY MANAGEMENT HAS YET
TO BE BROUGHT INTO USE
Professional fee arising directly from bringing the asset to
its working condition  INITIAL OPERATING LOSS
Cost of testing whether the asset is functioning properly
ACQUISITION AS PART OF ACQUISITION BY
BUSINESS COMBINATION EXCHANGE
COST – BASED ON THE FAIR VALUE EXCHANGE FAIR VALUE
ON THE DATE OF ACQUISITION WITH OF THE ASSET
COMMERCIA GIVEN UP
L SUBSTANCE PLUS ANY
CASH
ACQUISITION BY PAYMENT
GOVERNMENT GRANT EXCHANGE CARRYING
FAIR VALUE LACKS AMOUNT OF
COMMERCIAL THE ASSET
NOMINAL AMOUNT OR ZERO PLUS ANY SUBSTANCE GIVEN UP
EXPENDITURE DIRECTLY PLUS ANY
ATTRIBUTABLE TO PREPARING THE CASH
ASSET FOR ITS INTENDED USE PAYMENT
 INTERNALLY COSTS NOT
GENERATED CAPITALIZED
INTANGIBLE ASSET SELLING, ADMINISTRATIVE AND
OTHER GENERAL OVERHEAD
 Comprises all directly attributable costs necessary
UNLESS THIS EXPENDITURE CAN BE
to create, produce and prepare the asset to be
DIRECTLY ATTRIBUTED TO
capable of operating it in the manner intended by PREPARING THE ASSET FOR USE
management
DIRECTLY ATTRIBUTABLE CLEARLY IDENTIFIED INEFFICIENCY
AND INITIAL OPERATING LOSS
COSTS INCURRED BEFORE AN ASSET
A. COST OF MATERIALS AND SERVICES USED OR ACHIEVES PLANNED PERFORMANCE
CONSUMED IN GENERATING THE INTANGIBLE
EXPENDITURE ON TRAINING STAFF
ASSET
TO OPERATE THE ASSET
B. COST OF EMPLOYEE BENEFIT ARISING FROM
THE GENERATION OF THE INTANGIBLE ASSET
INTERNALLY GENERATED BRAND,
C. FEE TO REGISTER A LEGAL RIGHT MASTHEAD, PUBLISHING TITLE,
D. AMORTIZATION OF PATENT AND LICENSE CUSTOMER LIST – NOT CLASSIFIED AS
USED TO GENERATET THE INTANGIBLE ASSET INTANGIBLE ASSET
 EXPENDITURES
EXPENSED WHEN
INCURRED
 Start up cost
 Training cost
 Advertising & promotional cost
 Business relocation or reorganization cost

Subsequent expenditures shall be

recognized as expense for the reason these
expenditures will likely to maintain only the
expected future economic benefits.
 Amortization – systematic allocation of the
MEASUREMENT
amortizable amount of an intangible asset over
the useful life

AFTER RECOGNITION Amortizable amount

less residual value
– intangible asset

COST MODEL – HISTORICAL COST – Amortization– amortizable amount divided

ACCUMULATED DEPRECIATION –
by useful life; debit to amortization expense &
ACCUMULATED IMPAIRMENT LOSS
credit to intangible asset account
REVALUATION MODEL - REVALUED AMOUNT –  Begins when the asset is available for use
ACCUMULATED DEPRECIATION – ACCUMULATED  Ceases when the intangible asset is
IMPAIRMENT LOSS
derecognized or when the latter is classified
AMORTIZATION AND IMPAIRMENT OF as held for sale
INTANGIBLE ASSETS Useful life– assessed either indefinite or
finite (term of years/number of units produced)
INTANGIBLE ASSET AMORTIZED OVER
WITH FINITE LIFE THEIR USEFUL LIFE & Amortization method– pattern in which
TESTED FOR the future economic benefits from the asset are
IMPAIRMENT IF THERE expected to be consumed by the entity; if the
IS AN INDICATION pattern cannot be reliably determined, straight
INTANGIBLE ASSET NOT AMORTIZED BUT line method is used
WITH INFINITE LIFE TESTED FOR
IMPAIRMENT
Residual value – shall be presumed to zero except :
 When a third party is committed to buy the intangible
asset at the end of the useful life
 When there is an active market for the intangible asset
so that the expected residual value can be measured
and it its probable that there will be market for the
asset at the end of the useful life

 Reviewed at each financial year-end. Change in DERECOGNITION

residual value is accounted as a change in accounting  On disposal of the asset
estimate  When no future economic benefits are
expected from use and disposal of the asset
Change in amortization method & useful
life– changes in accounting estimate and therefore treated
currently & prospectively (Prospective accounting
application)
 Reviewed at each financial year-end
 GOODWILL RECOGNITION OF
 Most intangible of all intangible assets
 Unique; standing alone cannot be bought GOODWILL
and sold DEVELOPED PURCHASED
GOODWILL/INTER GOODWILL
 Can only be identified with the entity as a NAL GOODWILL
whole
-NOT RECORDED & -RECORDED &
 Not specifically identifiable, has an NOT RECOGNIZED RECOGNIZED AS
indeterminable life, is inherent in a AS AN ASSET AN ASSET
continuing business
 Arises when earnings exceed normal MEASUREMENT OF
earnings by reason of good name, capable
staff and personnel, high credit standing,
GOODWILL
reputation for fair dealings, reputation for RESIDUAL APPROACH
superior products, favorable location & a DIRECT APPROACH
list of regular customers
Thank You
BY YOURS TRULY,

LOUIE JIM D. PIALDA, CPA