Intangible Assets (IAS 38) - 3
Learning Outcomes
Account for website costs
Subsequently measure intangible assets
Present and disclose intangible assets
Website uses
The development of a website is an example of an
internally generated intangible asset
Advertising Placing orders
Expense Capitalise
Impossible to prove that Prove that future economic
future economic benefits will benefits will flow to entity,
result from advertising capitalise using the criteria in
next slide
Website costs
Stages Description of Stage Treatment of costs
Stage 1 Planning stage Expense costs (research cost)
Stage 2 Application and infrastructure
development - e.g., obtaining a
domain name & developing Development costs
server software • Capitalise when all 6
recognition criteria are met;
Stage 3 Graphical design – e.g. designing
otherwise
layout/colurs
• expense
Stage 4 Content development -
Stage 5 Operating stage – maintenance Expense costs, unless it’s a
and enhancement of stages 2-5 subsequent expense that can
be capitalised
Subsequent
Measurement
Uncommon due to nature if IA
Difficult to prove whether the
Subsequent expenditure relates to the
expenditure business as a whole or that
specific intangible asset.
on Intangible
Capitalise subsequent
Assets expenditure if:
definition and recognition criteria of
IA is met; otherwise
expense costs
IA with indefinite useful life
Do not amortise
Test for impairment i.t.o. IAS 36:
annually, and
whenever indication of impairment exists
Review useful life each year to determine if
indefinite useful life is still justified
If not, change from indefinite to finite
accounted for as change in estimate i.t.o. IAS 8
Amortisation
Systematic allocation of the depreciable amount of an IA over its
useful life
Depreciable amount is cost less residual value
Straight line, reducing balance or production unit method. Choose
method that reflects pattern of utilisation of economic benefits. If
this is unknown, use straight line method.
Start amortisation when asset is ready for use
Start amortisation for internally developed IA once commercial
production starts
Stop amortisation the earliest of:
Asset held for sale (IFRS 5)
Derecognition
Amortisation period is the shorter of the IA’s economic useful life
and its legal life
Amortisation (cont’d)
Legal life of on IA
Legal rights to IA controlled for finite period
Amortisation is limited to the legal life
If legal rights are renewable:
Useful life should include renewal period if;
evidence suggests the rights will be renewed
the cost of renewal is insignificant
Treatment of amortisation
Expense in SPL.
Can be capitalised if IA is used to create
another asset. Capitalise to the asset
created.
Assess whether finite or indefinite
Indefinite – no foreseeable limit to the
period over which the asset is expected to
generate cash flow
Finite useful life – amortised
Indefinite useful life – not amortised
Useful life
Where and entity’s right to IA is achieved
through legal rights for finite period (eg. 5
year licence to broadcast) – useful life
cannot exceed period of legal right unless
legal right is renewed.
Useful life (cont’d)
Factors to assess useful life:
possible obsolescence expected as a result of
technological changes;
the stability of the industry in which the asset operates;
the stability of the market demand for the asset’s output;
expected actions by competitors;
the level of maintenance required to obtain the expected
future economic benefits and
management’s intent and ability to provide such
maintenance
Usually zero, unless:
3rd party has committed to buy the IA
at the end of its useful life; or,
There is an active market for the IA
and
Residual the RV can be measured from the active
market and
Value
it is probable that the active market will
exist at the end of the useful life of the IA
Class activity
DO example 11 page 493 GGAAP, 22nd edition
Subsequent measurement
Cost model
Cost
Less: Accumulated amortisation and Accumulated impairment
= Carrying amount (CA)
Or
Revaluation model
IA subsequently remeasured to its fair value (FV)
CA = cost – subsequent accumulated amortisation and accumulated
impairment
FV must be determined with reference to an active market.
Derecognition
An intangible asset must be
derecognised:
on disposal; or
when no future economic benefits are
expected from its use or disposal
Presentation
STATEMENT OF FINANCIAL POSITION
ASSETS
Non-current assets
Intangible assets
xxx
Disclosure
Distinguish between internally generated and other IA
Whether the useful lives are indefinite or finite and, if
finite, the useful lives (e.g. five years)
Accounting policy
• Measurement basis of carrying amount
• Amortisation method
• Amortisation rate
Disclosure
SFP
• Cost price, acc amortisation & carrying amount
• Recon of carrying amount between beginning & end of period that show:
Acquisitions
Disposals
Impairment losses recognised
Impairment losses reversed
Amortisation
Refer to page 503-4, for an illustration of the disclosure note
