Accounting For Intangible Assets [IAS 3. With Case Examples. The purpose of IAS 3. Intangible Asset is to prescribe the recognition and measurement criteria for intangible assets that are not covered by other Standards. This Standard will enable users of financial statements to understand the extent of an entity’s investment in such assets and the movements therein. The principal issues involved relate to the nature and recognition of intangible assets, determining their costs, and assessing the amortization and impairment losses that need to be recognized. Advertisement. In some cases, an intangible asset may be contained on or in a tangible item. Obvious examples are computer software, films, and licensing agreements. In such situations, judgment is required to determine which is the more significant element. In the case of a machine incorporating software that cannot be operated without the software, the entire item would be treated as property, plant, and equipment under IAS 1. However, add- in software on a computer, such as some forms of report writing software or antivirus software, is not required for operating the tangible asset and therefore would be accounted under IAS 3. This Standard DOES apply to expenditure such as: advertising, training, start- up costs, research and development, patents, licensing, motion picture film, software, technical knowledge, franchises, customer loyalty, market share, market knowledge, customer lists, and the like. The Standard is to be applied in accounting for all intangible assets EXCEPT: Those that are within the scope of another Standard, Financial assets as defined in IAS 3. Mineral rights and expenditure on the exploration for, or development and extraction of, minerals, oil, natural gas, and similar non- regenerative resources. The Standard DOES NOT apply to those intangible assets covered by other Standards, such as: Intangible assets held for sale in the ordinary course of business (IAS 2), Deferred tax assets (IAS 1. ![]() Leases within the scope of IAS 1.Assets arising from employee benefit plans (IAS 1. Jason Becker Not Dead Yet Legendado Download Music . Financial assets covered by IAS 3. IAS 2. 7, IAS 2. 8, or IAS 3. Goodwill acquired in a business combination (IFRS 3), Deferred acquisition costs and intangible assets arising from insurance contracts (IFRS 4) (However, the disclosure requirements for such intangible assets are applicable), Noncurrent intangible assets classified as held for sale in accordance with IFRS 5. Elaboration And Interpretation Of The Definitions. Identifiability – In order to meet the definition of an intangible asset, expenditure on an item must be separately identifiable in order to distinguish it from goodwill. An asset meets the identifiability criterion when it: Is capable of being separated from the entity and sold, transferred, licensed, or rented either individually or in combination with a related contract, asset, or liability; or. Arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or other rights or obligations. Control – An entity controls an asset if it has the power to obtain the future economic benefits flowing from the underlying resource and to restrict the access of others to those benefits. Usually this control would flow from legally enforceable rights. However, legal enforceability is not necessary if control can be enforced in some other way. · The primary basis for GAAP accounting rules for capitalizing costs is the assumption that an asset or expenditure will realize benefits that extend through. XBRL (eXtensible Business Reporting Language) is a freely available and global standard for exchanging business information. XBRL allows the expression of semantic. ![]() For example, one method of control is keeping something secret through employee confidentiality. Control needs to be looked at carefully. An entity may be able to identify skills in its workforce and to measure the costs of providing those skills to its staff (via training).
However, the entity usually does not have control over the expected economic benefits arising from the skilled staff, as they can leave their employment. Even if the skills are protected in some way such that departing staff are not permitted to use them elsewhere, the entity has lost the future benefit of the skills imbued in the departing staff member. Similarly, the purchase of customer lists or expenditure on advertising, while identifiable, does not provide control to an entity over the expected future benefits. Customers are not forced to buy from the entity and can go elsewhere. Future Economic Benefit – Future economic benefit may include revenue from the sale of products, services, or processes, but also includes cost savings or other benefits from use of an asset. Use of intellectual property can reduce operating costs rather than produce revenue. Recognition And Measurement Of Intangible Asset. An item may be recognized as an intangible asset when it meets the definition of an intangible asset [see above] and meets these recognition criteria: It is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and. The cost of the asset can be measured reliably. Initially, intangible assets shall be measured at cost. The cost of separately acquired intangible assets comprises: Purchase price, including any import duties and non- refundable purchase taxes, less discounts and rebates; and. Directly attributable costs of preparing the asset for use. Directly attributable costs can include employee benefits, professional fees, and costs of testing. Costs that CANNOT be included are: Costs of introducing new products or services, such as advertising, Costs of conducting new business, Administration costs, Costs incurred while an asset that is ready for use is awaiting deployment, Costs of redeployment of an asset, Initial operating losses incurred from operation. Fact: In the corporate world, it is often noticed that entities spend huge sums of money on advertising campaigns to launch new products. Some multinational entities even hire famous performing artists or movie stars to act as brand ambassadors of the new products. Because the amounts spent on these advertising campaigns are so huge, these entities sincerely believe that the benefits from this promotion would last longer than a year and thus they are inclined to defer the costs of introducing new products over a period of two to three years. When the financial statements of these entities have to be audited, this is usually a contentious issue. Auditors generally find it very difficult to convince the entity’s management that the Standard categorically disallows deferring such costs. Here are the rule of thumb to follow: If payment for an intangible asset is deferred beyond normal credit terms, then the cost is the cash price and the balance is treated as a finance charge over the period of the finance. If intangible assets are acquired as part of a business combination, as defined in IFRS 3, their cost is their fair value at the acquisition date. The probability of future economic benefit is reflected in the fair value, and, therefore, the probability of future economic benefit required for recognition is presumed. In a business combination, such intangible assets are to be recognized separately from goodwill. Assessing the fair value of an intangible asset in a business combination can be difficult; obvious techniques are the use of comparable market transactions or quoted prices. Sometimes there may be a range of values to which probabilities can be assigned. Such uncertainty enters into the measurement of the asset rather than demonstrating an inability to measure the value. If an intangible asset has a finite life, then it is presumed to have a reliably measurable fair value. In some circumstances, it may not be possible to reliably measure the fair value of an intangible asset in a business combination because it is inseparable or there is no history or evidence of exchange transactions for the asset, and any fair value estimates would be based on immeasurable variables. If an intangible asset is acquired in exchange for another asset, then the acquired asset is measured at its fair value unless the exchange lacks commercial substance or the fair value cannot be reliably measured, in which case the acquired asset should be measured at the carrying amount of the asset given up, where carrying amount is equal to cost less accumulated depreciation and impairment losses. For impairment losses, reference should be made to IAS 3. In this context, any compensation received for impairment or loss of an asset shall be included in the income statement. Case Example: Lie Dharma Record Inc.
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