IAS 38 INTANGIBLE ASSETS | | HISTORY OF IAS 38 | |February 1977 |Exposure Draft E9, Accounting for Research and Development Activities | |July 1978 |IAS 9 (1978), Accounting for Research and Development Activities | |1 January 1980 |Effective Date of IAS 9 (1978) | |August 1991 |Exposure Draft E37 Research and Development Costs | |December 1993 |IAS 9 (1993) Research and Development Costs | |1 January 1995 |Effective Date of IAS 9 (1993) | |June 1995 |Exposure Draft E50 Intangible Assets | |August 1997 |E50 was modified and re-exposed as Exposure Draft E59 Intangible Assets | |September 1998 |IAS 38 Intangible Assets | |1 July 1999 |Effective Date of IAS 38 (1998) | |31 March 2004 |IAS 38 Revised | | |The summary below reflects the March 2004 revisions. |1 April 2004 (or |Effective Date of March 2004 revisions to IAS 38 | |date of adoption of | | |IFRS 3 for | | |intangibles acquired| | |in a business | | |combination) | | |RELATED INTERPRETATIONS | |IFRIC 12 Service Concession Arrangements | |IAS 16 supersedes SIC 6 Costs of Modifying Existing Software | |SIC 32 Intangible Assets – Website Costs | |Issues Relating to This Standard that IFRIC Did Not Add to Its Agenda | |AMENDMENTS UNDER CONSIDERATION BY IASB | |Convergence Topics | SUMMARY OF IAS 38 | |Objective | | |The objective of IAS 38 is to prescribe the accounting treatment for intangible assets that are not dealt with | | |specifically in another IAS. The Standard requires an enterprise to recognise an intangible asset if, and only if, | | |certain criteria are met. The Standard also specifies how to measure the carrying amount of intangible assets and | | |requires certain disclosures regarding intangible assets. | | |Scope | | |IAS 38 applies to all intangible assets other than: [IAS 38. -3] | | |financial assets | | |mineral rights and exploration and development costs incurred by mining and oil and gas companies | | |intangible assets arising from insurance contracts issued by insurance companies | | |intangible assets covered by another IAS, such as intangibles held for sale, deferred tax assets, lease assets, | | |assets arising from employee benefits, and goodwill. Goodwill is covered by IFRS 3. | | |Key Definitions | | |Intangible asset: An identifiable nonmonetary asset without physical substance. An asset is a resource that is | | |controlled by the enterprise as a result of past events (for example, purchase or self-creation) and from which | | |future economic benefits (inflows of cash or other assets) are expected. Thus, the three critical attributes of an | | |intangible asset are: [IAS 38. ] | | |identifiability | | |control (power to obtain benefits from the asset) | | |future economic benefits (such as revenues or reduced future costs) | | |Identifiability: An intangible asset is identifiable when it: [IAS 38. 12] | | |is separable (capable of being separated and sold, transferred, licensed, rented, or exchanged, either individually| | |or as part of a package) or | | |arises from contractual or other legal rights, regardless of whether those rights are transferable or separable | | |from the entity or from other rights and obligations. | |Examples of possible intangible assets include: | | |computer software | | |patents | | |copyrights | | |motion picture films | | |customer lists | | |mortgage servicing rights | | |licenses | | |import quotas | | |franchises | | |customer and supplier relationships | | |marketing rights | | |Intangibles can be acquired: | | |by separate purchase | | |as part of a business combination | | |by a government grant | | |by exchange of assets | | |by self-creation (internal generation) | | |Recognition | | |Recognition criteria. IAS 38 requires an enterprise to recognise an intangible asset, whether purchased or | | |self-created (at cost) if, and only if: [IAS 38. 1] | | |it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise; | | |and | | |the cost of the asset can be measured reliably. | | |This requirement applies whether an intangible asset is acquired externally or generated internally. IAS 38 | | |includes additional recognition criteria for internally generated intangible assets (see below). | | |The probability of future economic benefits must be based on reasonable and supportable assumptions about | | |conditions that will exist over the life of the asset. [IAS 38. 22] The probability recognition criterion is always | | |considered to be satisfied for intangible assets that are acquired separately or in a business combination. [IAS | | |38. 3] | | |If recognition criteria not met. If an intangible item does not meet both the definition of and the criteria for | | |recognition as an intangible asset, IAS 38 requires the expenditure on this item to be recognised as an expense | | |when it is incurred. [IAS 38. 68] | | |Business combinations. There is a rebuttable presumption that the fair value (and therefore the cost) of an | | |intangible asset acquired in a business combination can be measured reliably. [IAS 38. 5] An expenditure (included | | |in the cost of acquisition) on an intangible item that does not meet both the definition of and recognition | | |criteria for an intangible asset should form part of the amount attributed to the goodwill recognised at the | | |acquisition date. IAS 38 notes, however, that non-recognition due to measurement reliability should be rare: [IAS | | |38. 38] | | |The only circumstances in which it might not be possible to measure reliably the fair value of an intangible asset | | |acquired in a business combination are when the intangible asset arises from legal or other contractual rights and | | |either: | | |(a) is not separable; or | | |(b) is eparable, but there is no history or evidence of exchange transactions for the same or similar assets, and | | |otherwise estimating fair value would be dependent on immeasurable variables. | | |Reinstatement. The Standard also prohibits an enterprise from subsequently reinstating as an intangible asset, at a| | |later date, an expenditure that was originally charged to expense. [IAS 38. 71] | | |Initial Recognition: Research and Development Costs | | |Charge all research cost to expense. [IAS 38. 54] | | |Development costs are capitalised only after technical and commercial feasibility of the asset for sale or use have| | |been established.
This means that the enterprise must intend and be able to complete the intangible asset and | | |either use it or sell it and be able to demonstrate how the asset will generate future economic benefits. [IAS | | |38. 57] | | |If an enterprise cannot distinguish the research phase of an internal project to create an intangible asset from | | |the development phase, the enterprise treats the expenditure for that project as if it were incurred in the | | |research phase only. | | |Initial Recognition: In-process Research and Development Acquired in a Business Combination | | |A research and development project acquired in a business combination is recognised as an asset at cost, even if a | | |component is research.
Subsequent expenditure on that project is accounted for as any other research and | | |development cost (expensed except to the extent that the expenditure satisfies the criteria in IAS 38 for | | |recognising such expenditure as an intangible asset). [IAS 38. 34] | | |Initial Recognition: Internally Generated Brands, Mastheads, Titles, Lists | | |Brands, mastheads, publishing titles, customer lists and items similar in substance that are internally generated | | |should not be recognised as assets. [IAS 38. 63] | | |Initial Recognition: Computer Software | | |Purchased: apitalise | | |Operating system for hardware: include in hardware cost | | |Internally developed (whether for use or sale): charge to expense until technological feasibility, probable future | | |benefits, intent and ability to use or sell the software, resources to complete the software, and ability to | | |measure cost. | | |Amortisation: over useful life, based on pattern of benefits (straight-line is the default). | | |Initial Recognition: Certain Other Defined Types of Costs | | |The following items must be charged to expense when incurred: | | |internally generated goodwill [IAS 38. 8] | | |start-up, pre-opening, and pre-operating costs [IAS 38. 69] | | |training cost [IAS 38. 69] | | |advertising cost [IAS 38. 69] | | |relocation costs [IAS 38. 69] | | |Initial Measurement | | |Intangible assets are initially measured at cost. [IAS 38. 4] | | |Measurement Subsequent to Acquisition: Cost Model and Revaluation Models Allowed | | |An entity must choose either the cost model or the revaluation model for each class of intangible asset. [IAS | | |38. 72] | | |Cost model. After initial recognition the benchmark treatment is that intangible assets should be carried at cost | | |less any amortisation and impairment losses. [IAS 38. 74] | | |Revaluation model. Intangible assets may be carried at a revalued amount (based on fair value) less any subsequent | | |amortisation and impairment losses only if fair value can be determined by reference to an active market. [IAS | | |38. 5] Such active markets are expected to be uncommon for intangible assets. [IAS 38. 78] Examples where they might| | |exist: | | |Milk quotas. | | |Stock exchange seats. | | |Taxi medallions. | | |Under the revaluation model, revaluation increases are credited directly to “revaluation surplus” within equity | | |except to the extent that it reverses a revaluation decrease previously recognised in profit and loss. If the | | |revalued intangible has a finite life and is, therefore, being amortised (see below) the revalued amount is | | |amortised. [IAS 38. 5] | | |Classification of Intangible Assets Based on Useful Life | | |Intangible assets are classified as: [IAS 38. 88] | | |Indefinite life: No foreseeable limit to the period over which the asset is expected to generate net cash inflows | | |for the entity. | | |Finite life: A limited period of benefit to the entity. | | |Measurement Subsequent to Acquisition: Intangible Assets with Finite Lives | | |The cost less residual value of an intangible asset with a finite useful life should be amortised over that life: | | |[IAS 38. 7] | | |The amortisation method should reflect the pattern of benefits. | | |If the pattern cannot be determined reliably, amortise by the straight line method. | | |The amortisation charge is recognised in profit or loss unless another IFRS requires that it be included in the | | |cost of another asset. | | |The amortisation period should be reviewed at least annually. [IAS 38. 104] | | |The asset should also be assessed for impairment in accordance with IAS 36. [IAS 38. 111] | | |Measurement Subsequent to
Acquisition: Intangible Assets with Indefinite Lives | | |An intangible asset with an indefinite useful life should not be amortised. [IAS 38. 107] | | |Its useful life should be reviewed each reporting period to determine whether events and circumstances continue to | | |support an indefinite useful life assessment for that asset. If they do not, the change in the useful life | | |assessment from indefinite to finite should be accounted for as a change in an accounting estimate. [IAS 38. 109] | | |The asset should also be assessed for impairment in accordance with IAS 36. [IAS 38. 11] | | |Subsequent Expenditure | | |Subsequent expenditure on an intangible asset after its purchase or completion should be recognised as an expense | | |when it is incurred, unless it is probable that this expenditure will enable the asset to generate future economic | | |benefits in excess of its originally assessed standard of performance and the expenditure can be measured and | | |attributed to the asset reliably. [IAS 38. 60] | | |Disclosure | | |For each class of intangible asset, disclose: [IAS 38. 118 and 38. 22] | | |useful life or amortisation rate | | |amortisation method | | |gross carrying amount | | |accumulated amortisation and impairment losses | | |line items in the income statement in which amortisation is included | | |reconciliation of the carrying amount at the beginning and the end of the period showing: | | |additions (business combinations separately) | | |assets held for sale | | |retirements and other disposals | | revaluations | | |impairments | | |reversals of impairments | | |amortisation | | |foreign exchange differences | | |basis for determining that an intangible has an indefinite life | | |description and carrying amount of individually material intangible assets | | |certain special disclosures about intangible assets acquired by way of government grants | | |information about intangible assets whose title is restricted | | |commitments to acquire intangible assets | | |Additional disclosures are required about: | | |intangible assets carried at revalued amounts [IAS 38. 124] | | |the amount of research and development expenditure recognised as an expense in the current period [IAS 38. 126] | | [pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic][pic]