Intangible Assets - yyyy PDF

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ACCOUNTING FOR INTANGILBLES (AASB 138) Intangible assets are non-monetary assets without physical substance. Includes patents, goodwill, mastheads, brand names, copyrights, research and development, and trademarks Intangible assets, as a category, must be separately disclosed in the statement of financial position (balance sheet) Identifiable intangible assets A specific value can be placed on each individual asset, and they can be separately identified and sold For example, brand names, trademarks, research and development, patents, licences, mastheads and copyrights. These can only be booked if externally acquired Internally generated intangibles (other than those relating to development expenditure, if certain criteria are satisfied) must be expensed as incurred – para 63, AASB 138. ‘Internally generated’—if developed within the organisation rather than being acquired at cost from an external party Unidentifiable intangible assets Intangible assets that cannot be separately sold For example, goodwill The recognition of internally generated goodwill is prohibited The unidentifiable intangible asset of goodwill is permitted to be recognised for accounting purposes only when it has been externally acquired and not when it has been internally generated (AASB 3) Which intangible assets can be recognised and included in the statement of financial position? Intangible assets may be recognised only upon acquisition from an external party and only when there is an associated ‘cost’ ‘Cost’ to include purchase price (including legal fees, taxes and deducting discounts) and cost involved in getting asset ready for use Initial recognition of an intangible asset can only be at cost

What is the initial basis of measurement of intangible assets? Once an item of expenditure related to an intangible asset has been written off (expensed) it must stay written off. Acquired intangible assets may be revalued to fair value only where there is an ‘active market’ for such assets Example 8.1 General amortisation requirements for intangible assets Intangible assets (other than goodwill) that are considered to have a limited useful life are required to be amortised over their useful lives E.g. Asset worth $100,000, useful life 5 years;- Each year, simply: Dr Amortisation expense $20,000, Cr Accumulated Depreciation $20,000 Useful life and residual values reviewed annually see also Worked Example 8.3

Revaluation of intangible assets AASB 138—intangible assets may be revalued only if there is an ‘active market’ • Only assets that have been acquired at cost can subsequently be revalued It is ‘uncommon’ for active markets to exist for most intangible assets because of their unique nature Therefore, intangible assets can typically not be revalued—this has obvious implications for the undervaluation of assets as shown in a statement of financial position It is ‘uncommon’ for active markets to exist for most intangible assets because of their unique nature Therefore, intangible assets can typically not be revalued—this has obvious implications for the undervaluation of assets as shown in a statement of financial position Example 8.4 Research and development AASB 138 applies the simplifying assumption that all expenditure undertaken on the research component of research and development is to be expensed Development examples

The design, construction and testing of preproduction or pre-use prototypes and models The design of tools, jigs, moulds and dies involved in new technology The design, construction and operation of a pilot plant that is not of a scale economically feasible for commercial production The design, construction and testing of a chosen alternative for new or improved materials, devices, products, processes or systems Research expenditure—to be expensed as incurred Deferment of Development Expenditure – see example 8.5 Amortisation of deferred development costs AASB 138 provides a number of requirements for the amortisation of intangibles, which also apply to any development expenditure that has been capitalised and deferred to future periods Amortisation can be based on (whichever is appropriate):  output levels, or  expiration of time Refer to Worked Example 8.6—Amortisation of deferred development costs Refer to Worked Example 8.7—Calculating deferred development balances Goodwill Could be built up over a number periods (internally generated) or obtained (purchased) by acquiring an existing business Refer worked example 8.8 Impairment of Goodwill Accounting for impairment loss of goodwill Dr Impairment loss—goodwill Cr Accumulated impairment loss—goodwill Example 8.9...