IAS 38 intangible assets

PowerPoint Presentation IAS 38 INTANGIBLE ASSETS Presented by March 8th, 2019 A team with passion of conquering INTANGIBLE ASSETS Objective and scope Definition Recognition and measurement Acquired in.

IAS 38

INTANGIBLE ASSETS

Presented by :

March 8 th , 2019

INTANGIBLE ASSETS

 Objective and scope

 Definition

 Recognition and measurement

 Acquired intangible assets

 Internally generated intangibles

 Measurement after recognition

 Retirements and disposals

 Disclosures

Objective and scope

Objective

 Allow entities to Identify and Recognize separate value of intangible assets

 Enables users to Assess more Accurately the value and make up of assets of the entity

Objective and scope

Scope

 Definition of intangible asset

 Recognition and De-recognition as an asset

 Determine carrying amount

 Determination and treatment of impairment losses

 Disclosure requirement

 Having future economic benefits

 No physical substance

 With high degree of uncertainly concerning the future benefit

 Arises from the contractual and other legal rights

 Clearly distinguishable and controllable

COMMON TYPE OF INTANGIBLE ASSETS

Goodwill

Recognition

Recognition

An asset can recognize as an asset if

 Flow of probable future economic benefit into the entity

 Cost can be measured reliably

Acquired Intangible

Assets

Not include in cost:

o Advertising, promotional activities

o Training associated with new products, locations, customers

o Administrative and other general overhead

o Early stage operating losses

Total amount to be capitalized at 30 April 2017 $243,000

In addition the settlement discount received of $10,800 ($216,000 x 5%) is to be shown as other income in the income statement

Acquired Intangible

Assets

Intangibles acquired in an asset exchange:

Cost = fair value (FV) of what is given up, UNLESS

(a) Transaction does not have commercial substance, or

(b) The FV of neither the asset given up or the asset acquired can be reliably measured

If (a) or (b), cost = carrying amount of asset(s) given up

Acquired Intangible

Assets

Commercial substance exists if:

(a) Future cash flows (amount, timing, risk) of asset received differ from those of asset given up; or(b) Entity-specific value has changed; and

(c) The difference in (a) or (b) is significant when compared to the FVs of the assets exchanged

Acquired Intangible

Assets

Acquired in a business combination:

Cost is its FV

Identifiable intangibles are recognized separately from goodwill

Best FV is quoted market prices in an active market – if not available, other methods are used

Internally Generated

Intangibles

Two Phases

Research Phase: No intangible assets arising from the research phase may be recognized

There is insufficient certainly that it will generate future economic benefits

Development Phase: Intangible assets arising from the development phase are recognized when the entity meets those two recognition criteria

Internally Generated

Intangibles

Cost cannot be capitalized

The costs relating to many internally generated intangible items cannot be capitalized and are expensed

Internally Generated

Intangibles

Example 2:

DAF Inc is a start-up enterprise, through the contacts of its owner, received a

confirmed order from a well known aircraft manufacturer to develop new designs for ducting the washing machine of their aircraft For this project, DAF Inc needed funds aggregating to $1.1 million It was able to convince venture capitalists and was able to obtain funding of $1.1 million from two K16409 venture capitalists.

Cost of developing the duct and

producing the test model $180,000

Cost revising the ducting process $150,000

salaries of the technicians $270,000

Cost of the conference to

introduction new product $60,000

Net profit for the year was estimated to equal $850,000

Conference costs of $80,000 would need to be expensed because they are    

independent from the development process.

Measurement after

Recognition

Initial measurement

 On Initial Recognition an intangible asset is measured at Cost

 Incase of internal project Research Expenditure and Development Expenditure should be separated

 Project Research expenditure will be treated as Expense

 Project Development expenditure will be treated at Cost

Measurement after

Recognition

Example 3

DAF plc started research work on a new product on the first day of its accounting period, 1 October, 2017

Expenditure at the rate of $4,000 per quarter and continued until 1 June, 2018 from which date expenditure was increased to $6,000 per quarter On 31 August, 2018 the managers announced their confidence in the

profitability of the project that was still in the development stage on 31 Dec, 2018

How much will be the capitalized value of research and development expenditure on DAF plc’s SFP as at 31 Dec, 2018?

Measurement after

Recognition

Example 3: Solution

Quarter Expenditure rate Value Type

1 Oct, 2017 – 1 June, 2018 3 $4,000 $12,000 Expense

1 June, 2018 – 31 Aug,2018 1 $6,000 $6,000 Expense

31 Aug, 2018 – 31 Dec, 2018 1 $6,000 $6,000 Capitalize

Measurement after

Recognition

Cost model

Carrying amount= Cost – Accumulated Amortization – Impairment losses

Asset classified as held for sale are show at the Lower of Fair Value less Costs to sell and Carrying amount

The asset value should be reviewed regularly

The revaluation model is onlu available if an active market exists for that intangible asset

Suck active markets are expected to be uncommon for intangible assets

Measurement after

Recognition

Useful life of Intangible asset

Useful life of an intangible assets can be applied in 2 ways

Intangible asset with a Finite useful life is amortized on a systematic basis over the best estimate of its useful life

Intangible asset with an Infinite should be tested for impairment annually but not amortized

Other method can be applied if it is more appropriate than the Straight-line method

Residual value: Usually zero

Measurement after

Recognition

Intangibles Assets with Infinite lives

 Trademarks, goodwill, in-process R&D

 The costs are not subject to amortization

 Impairment test is required at least annually

Measurement after

Recognition

Useful life of Intangible assets

to have a 8 year useful life and had been purchased on 1 July, 2015.

The review indicated that the brand had a value in use of $120,000 and a revised remaining useful life of 4 years On the same day as the review results were given to the directors DAF.co received an offer of

$130,000 from K16409 plc to purchase the brand

In the SFP at 31 Dec,2018 what will be the carrying value of the brand?

Measurement after

Recognition

Example 5

DAF Inc owns a freely transferable taxi operator’s license, which is acquired on 1 July, 2017,

at an initial cost of $24,000, The useful life of the license is 6 years

The entity uses the straight-line method to amortize the intangible.

At 31 Dec 2019, due to a government-permitted decrease in fixed taxi fares, the traded

values of such a license was $12,000 The accumulated amortization on 31 Dec, 2019 is

$10,000.

Required:

a) What journal entries are required at 31 Dec,2019?

b) What would be carrying amount of IA after revaluation?

Cr Intangible Asset a/c $10,000

( being eliminate of accumulated depreciation against the cost of the asset)

Dr Revaluation Reserve a/c $2,000

Cr Intangible Asset a/c $2,000

( being uplift of net book value to revalued amount)

b) The net result is that asset has a revised carrying amount of $12,000 ( $24,000-$10,000-$2,000)

Retirement and

Disposals

Gain or loss on derecognition

Difference between carrying amount and net proceeds on disposal Recognize in P&L

General

 Separately between internally generated and those purchased

 Accounting policies and methods used

 Reconciliations between opening and ending balance

 Additional details about those judged to have indefinite lives

Re-valued intangibles

Disclose separately

Also, R&D costs expensed in the period

Intangible assets using RM

For each class, the date of the revaluation, carrying amounts, carrying

amounts if cost method had been used, methods and assumptions used to determine FV, reconciliations of revaluation surplus amounts, restrictions on distribution of revaluation surplus amounts

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