IAS 38 Intangible Assets

IAS 38 Intangible Assets

1. An intangible asset is an identifiable non-monetary asset without physical substance (Computer software, brands, licences and patents

   • An intangible asset may be recognised in the financial statements if:
     • It is probable that the entity will receive future economic benefits from the asset
     • The cost of the asset can be measured reliably.

2. Measurement at recognition

   • Intangible assets may be purchased or generated internally within the entity. This determines how they should be measured.
     • Intangible assets purchased separately
       • cost (purchase price plus any directly attributable costs.
     • Acquired as part of business combination
       • fair value ( value of the intangible given by an active market.)

3. Internally generated intangible assets

   • Research
     • costs incurred to gain new scientific or technical knowledge and understanding
     • not recognised as an intangible asset, but shown as an expense in the income statement
       • no certainty of future economic benefits
   • Development
     • application of research findings to a plan/design for the production of new or substantially improved materials, products or processes prior to commercial production or use
     • must be recognised as an intangible asset once all PIRATE criteria are met
     • P - Probable future economic benefits will be generated by the asset
     • I - Intention to complete and use/sell asset
     • R - Resources (technical, financial) adequate to complete asset
     • A - Ability to use/sell asset
     • T - Technical feasibility of completing asset
     • E - Expenditure can be measured reliably

4. Amortisation

   • Assets with a finite useful life
     • The depreciable amount (cost or revalued amount, less residual value) is allocated on a systematic basis over useful life.
       • The residual value is normally assumed to be zero.
         • Amortisation begins when the asset is available for use.
           • The useful life and amortisation method must be reviewed at least at each year end and adjusted where necessary.
   • Assets with an indefinite useful life
     • Not amortised.
       • The appropriateness of the indefinite useful life assessment is reviewed each period to determine whether it is still appropriate.
         • Impairment tests are conducted at least annually (IAS 36: Impairment of assets).

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