IAS 38 INTANGIBLE ASSETS

IAS38INTANGIBLEASSETS HISTORYOFIAS38 February1977 ExposureDraftE9,AccountingforResearchandDevelopmentActivities July1978 IAS9(1978),AccountingforResearchandDevelopmentActivities 1January1980 EffectiveDateofIAS9(1978) August1991 ExposureDraftE37ResearchandDevelopmentCosts December1993 IAS9(1993)ResearchandDevelopmentCosts 1January1995 EffectiveDateofIAS9(1993) June1995 ExposureDraftE50IntangibleAssets August1997 E50wasmodifiedandre-exposedasExposureDraftE59IntangibleAssets September1998 IAS38IntangibleAssets 1July1999 EffectiveDateofIAS38(1998) 31March2004 IAS38RevisedThesummarybelowreflectstheMarch2004revisions. 1April2004(ordateofadoptionofIFRS3forintangiblesacquiredinabusinesscombination) EffectiveDateofMarch2004revisionstoIAS38 RELATEDINTERPRETATIONS ·IFRIC12ServiceConcessionArrangements·IAS16supersedesSIC6CostsofModifyingExistingSoftware·SIC32IntangibleAssets–WebsiteCosts·IssuesRelatingtoThisStandardthatIFRICDidNotAddtoItsAgenda AMENDMENTSUNDERCONSIDERATIONBYIASB ·ConvergenceTopics SUMMARYOFIAS38 ObjectiveTheobjectiveofIAS38istoprescribetheaccountingtreatmentforintangibleassetsthatarenotdealtwithspecificallyinanotherIAS.TheStandardrequiresanenterprisetorecogniseanintangibleassetif,andonlyif,certaincriteriaaremet.TheStandardalsospecifieshowtomeasurethecarryingamountofintangibleassetsandrequirescertaindisclosuresregardingintangibleassets.ScopeIAS38appliestoallintangibleassetsotherthan:[IAS38.2-3]·financialassets·mineralrightsandexplorationanddevelopmentcostsincurredbyminingandoilandgascompanies·intangibleassetsarisingfrominsurancecontractsissuedbyinsurancecompanies·intangibleassetscoveredbyanotherIAS,suchasintangiblesheldforsale,deferredtaxassets,leaseassets,assetsarisingfromemployeebenefits,andgoodwill.GoodwilliscoveredbyIFRS3.KeyDefinitionsIntangibleasset:Anidentifiablenonmonetaryassetwithoutphysicalsubstance.Anassetisaresourcethatiscontrolledbytheenterpriseasaresultofpastevents(forexample,purchaseorself-creation)andfromwhichfutureeconomicbenefits(inflowsofcashorotherassets)areexpected.Thus,thethreecriticalattributesofanintangibleassetare:[IAS38.8]·identifiability·control(powertoobtainbenefitsfromtheasset)·futureeconomicbenefits(suchasrevenuesorreducedfuturecosts)Identifiability:Anintangibleassetisidentifiablewhenit:[IAS38.12]·isseparable(capableofbeingseparatedandsold,transferred,licensed,rented,orexchanged,eitherindividuallyoraspartofapackage)or·arisesfromcontractualorotherlegalrights,regardlessofwhetherthoserightsaretransferableorseparablefromtheentityorfromotherrightsandobligations.Examplesofpossibleintangibleassetsinclude:·computersoftware·patents·copyrights·motionpicturefilms·customerlists·mortgageservicingrights·licenses·importquotas·franchises·customerandsupplierrelationships·marketingrightsIntangiblescanbeacquired:·byseparatepurchase·aspartofabusinesscombination·byagovernmentgrant·byexchangeofassets·byself-creation(internalgeneration)RecognitionRecognitioncriteria.IAS38requiresanenterprisetorecogniseanintangibleasset,whetherpurchasedorself-created(atcost)if,andonlyif:[IAS38.21]·itisprobablethatthefutureeconomicbenefitsthatareattributabletotheassetwillflowtotheenterprise;and·thecostoftheassetcanbemeasuredreliably.Thisrequirementapplieswhetheranintangibleassetisacquiredexternallyorgeneratedinternally.IAS38includesadditionalrecognitioncriteriaforinternallygeneratedintangibleassets(seebelow).Theprobabilityoffutureeconomicbenefitsmustbebasedonreasonableandsupportableassumptionsaboutconditionsthatwillexistoverthelifeoftheasset.[IAS38.22]Theprobabilityrecognitioncriterionisalwaysconsideredtobesatisfiedforintangibleassetsthatareacquiredseparatelyorinabusinesscombination.[IAS38.33]Ifrecognitioncriterianotmet.Ifanintangibleitemdoesnotmeetboththedefinitionofandthecriteriaforrecognitionasanintangibleasset,IAS38requirestheexpenditureonthisitemtoberecognisedasanexpensewhenitisincurred.[IAS38.68]Businesscombinations.Thereisarebuttablepresumptionthatthefairvalue(andthereforethecost)ofanintangibleassetacquiredinabusinesscombinationcanbemeasuredreliably.[IAS38.35]Anexpenditure(includedinthecostofacquisition)onanintangibleitemthatdoesnotmeetboththedefinitionofandrecognitioncriteriaforanintangibleassetshouldformpartoftheamountattributedtothegoodwillrecognisedattheacquisitiondate.IAS38notes,however,thatnon-recognitionduetomeasurementreliabilityshouldberare:[IAS38.38]Theonlycircumstancesinwhichitmightnotbepossibletomeasurereliablythefairvalueofanintangibleassetacquiredinabusinesscombinationarewhentheintangibleassetarisesfromlegalorothercontractualrightsandeither:·(a)isnotseparable;or·(b)isseparable,butthereisnohistoryorevidenceofexchangetransactionsforthesameorsimilarassets,andotherwiseestimatingfairvaluewouldbedependentonimmeasurablevariables.Reinstatement.TheStandardalsoprohibitsanenterprisefromsubsequentlyreinstatingasanintangibleasset,atalaterdate,anexpenditurethatwasoriginallychargedtoexpense.[IAS38.71]InitialRecognition:ResearchandDevelopmentCosts·Chargeallresearchcosttoexpense.[IAS38.54]·Developmentcostsarecapitalisedonlyaftertechnicalandcommercialfeasibilityoftheassetforsaleorusehavebeenestablished.Thismeansthattheenterprisemustintendandbeabletocompletetheintangibleassetandeitheruseitorsellitandbeabletodemonstratehowtheassetwillgeneratefutureeconomicbenefits.[IAS38.57]Ifanenterprisecannotdistinguishtheresearchphaseofaninternalprojecttocreateanintangibleassetfromthedevelopmentphase,theenterprisetreatstheexpenditureforthatprojectasifitwereincurredintheresearchphaseonly.InitialRecognition:In-processResearchandDevelopmentAcquiredinaBusinessCombinationAresearchanddevelopmentprojectacquiredinabusinesscombinationisrecognisedasanassetatcost,evenifacomponentisresearch.Subsequentexpenditureonthatprojectisaccountedforasanyotherresearchanddevelopmentcost(expensedexcepttotheextentthattheexpendituresatisfiesthecriteriainIAS38forrecognisingsuchexpenditureasanintangibleasset).[IAS38.34]InitialRecognition:InternallyGeneratedBrands,Mastheads,Titles,ListsBrands,mastheads,publishingtitles,customerlistsanditemssimilarinsubstancethatareinternallygeneratedshouldnotberecognisedasassets.[IAS38.63]InitialRecognition:ComputerSoftware·Purchased:capitalise·Operatingsystemforhardware:includeinhardwarecost·Internallydeveloped(whetherforuseorsale):chargetoexpenseuntiltechnologicalfeasibility,probablefuturebenefits,intentandabilitytouseorsellthesoftware,resourcestocompletethesoftware,andabilitytomeasurecost.·Amortisation:overusefullife,basedonpatternofbenefits(straight-lineisthedefault).InitialRecognition:CertainOtherDefinedTypesofCostsThefollowingitemsmustbechargedtoexpensewhenincurred:·internallygeneratedgoodwill[IAS38.48]·start-up,pre-opening,andpre-operatingcosts[IAS38.69]·trainingcost[IAS38.69]·advertisingcost[IAS38.69]·relocationcosts[IAS38.69]InitialMeasurementIntangibleassetsareinitiallymeasuredatcost.[IAS38.24]MeasurementSubsequenttoAcquisition:CostModelandRevaluationModelsAllowedAnentitymustchooseeitherthecostmodelortherevaluationmodelforeachclassofintangibleasset.[IAS38.72]Costmodel.Afterinitialrecognitionthebenchmarktreatmentisthatintangibleassetsshouldbecarriedatcostlessanyamortisationandimpairmentlosses.[IAS38.74]Revaluationmodel.Intangibleassetsmaybecarriedatarevaluedamount(basedonfairvalue)lessanysubsequentamortisationandimpairmentlossesonlyiffairvaluecanbedeterminedbyreferencetoanactivemarket.[IAS38.75]Suchactivemarketsareexpectedtobeuncommonforintangibleassets.[IAS38.78]Exampleswheretheymightexist:·Milkquotas.·Stockexchangeseats.·Taximedallions.Undertherevaluationmodel,revaluationincreasesarecrediteddirectlyto"revaluationsurplus"withinequityexcepttotheextentthatitreversesarevaluationdecreasepreviouslyrecognisedinprofitandloss.Iftherevaluedintangiblehasafinitelifeandis,therefore,beingamortised(seebelow)therevaluedamountisamortised.[IAS38.85]ClassificationofIntangibleAssetsBasedonUsefulLifeIntangibleassetsareclassifiedas:[IAS38.88]·Indefinitelife:Noforeseeablelimittotheperiodoverwhichtheassetisexpectedtogeneratenetcashinflowsfortheentity.·Finitelife:Alimitedperiodofbenefittotheentity.MeasurementSubsequenttoAcquisition:IntangibleAssetswithFiniteLivesThecostlessresidualvalueofanintangibleassetwithafiniteusefullifeshouldbeamortisedoverthatlife:[IAS38.97]·Theamortisationmethodshouldreflectthepatternofbenefits.·Ifthepatterncannotbedeterminedreliably,amortisebythestraightlinemethod.·TheamortisationchargeisrecognisedinprofitorlossunlessanotherIFRSrequiresthatitbeincludedinthecostofanotherasset.·Theamortisationperiodshouldbereviewedatleastannually.[IAS38.104]TheassetshouldalsobeassessedforimpairmentinaccordancewithIAS36.[IAS38.111]MeasurementSubsequenttoAcquisition:IntangibleAssetswithIndefiniteLivesAnintangibleassetwithanindefiniteusefullifeshouldnotbeamortised.[IAS38.107]Itsusefullifeshouldbereviewedeachreportingperiodtodeterminewhethereventsandcircumstancescontinuetosupportanindefiniteusefullifeassessmentforthatasset.Iftheydonot,thechangeintheusefullifeassessmentfromindefinitetofiniteshouldbeaccountedforasachangeinanaccountingestimate.[IAS38.109]TheassetshouldalsobeassessedforimpairmentinaccordancewithIAS36.[IAS38.111]SubsequentExpenditureSubsequentexpenditureonanintangibleassetafteritspurchaseorcompletionshouldberecognisedasanexpensewhenitisincurred,unlessitisprobablethatthisexpenditurewillenabletheassettogeneratefutureeconomicbenefitsinexcessofitsoriginallyassessedstandardofperformanceandtheexpenditurecanbemeasuredandattributedtotheassetreliably.[IAS38.60]DisclosureForeachclassofintangibleasset,disclose:[IAS38.118and38.122]·usefullifeoramortisationrate·amortisationmethod·grosscarryingamount·accumulatedamortisationandimpairmentlosses·lineitemsintheincomestatementinwhichamortisationisincluded·reconciliationofthecarryingamountatthebeginningandtheendoftheperiodshowing:·additions(businesscombinationsseparately)·assetsheldforsale·retirementsandotherdisposals·revaluations·impairments·reversalsofimpairments·amortisation·foreignexchangedifferences·basisfordeterminingthatanintangiblehasanindefinitelife·descriptionandcarryingamountofindividuallymaterialintangibleassets·certainspecialdisclosuresaboutintangibleassetsacquiredbywayofgovernmentgrants·informationaboutintangibleassetswhosetitleisrestricted·commitmentstoacquireintangibleassetsAdditionaldisclosuresarerequiredabout:·intangibleassetscarriedatrevaluedamounts[IAS38.124]·theamountofresearchanddevelopmentexpenditurerecognisedasanexpenseinthecurrentperiod[IAS38.126]