INTERMEDIATE ACCOUNTING Initial Measurement

Chapter 22 Intangible Assets - Intangible assets are initially measured at

cost
Intangible asset – an identifiable, non-monetary - Measurement depends on the acquisition of
asset without physical substance (scientific and the asset:
technical knowledge, design and implementation of - Separate acquisition
new process, licenses, intellectual property, market - Acquisition as part of business combination
knowledge and trademarks) - Acquisition by way of a government grant
- Exchanges of assets
Elements of an Intangible Asset - Internal generation
Identifiable – an asset is identifiable if it either: Separate Acquisition
- Is separable (capable of being separated - The cost of separately acquires IA is:
and divided from the entity, sold or - Purchase price including import duties and
transferred whether the entity intends to do non-refundable taxes after trade discounts
so or; and rebates
- Arises from contractual and legal rights, - Any directly attributable costs in preparing
regardless whether those rights are the asset for intended use
separable or not
- An intangible asset must be identifiable in (See examples page 401) :>>>
order to distinguish it from goodwill because
goodwill is outside of the scope of PAS 38 - If the payment is deferred, the cost is the
cash price equivalent
Control – control means the entity has the ability to
benefit from the asset and prevent others from Acquisition as part of Business Combination
benefitting from it
- Cost is the fair value at acquisition date
- Control of IA usually arise from legal rights
that are enforceable in a court of law Acquisition by way of Government Grant

Future economic benefits – the future economic - May be initially measured at either:
benefit from an IA may include from revenue from - Fair value or;
the sale of products or services or cost savings - Nominal amount plus direct cost incurred

Assets with both Tangible and Intangible Exchanges of Assets

- It’s up to the entity’s judgment to assess - Depends whether the exchange transaction
which element is more significant has commercial substance or not
- (a) with commercial substance order of
(See examples page 399) :>>> priority:
- Fair value of asset given up (+/- cash paid
Financial Statement Presentation or received)
- Fair value of the asset received
- IA are accounted for under PAS 38, - Carrying amount of the asset given up (+/-
presented separately from goodwill cash paid and received)
- Aggregated and presented as one line item - (b) lacks commercial substance is
as “intangible assets” or “other intangible measured at carrying amount of the asset
assets” breakdown is disclosed in the notes given up (+/- cash paid or received)
- Goodwill is presented separately
Internally Generated Intangible Assets
Recognition
- Generation is classified into research or
- An intangible asset is recognized when it development phase
meets the definition of intangible asset as - (a) research phase – is the original and
well as recognition criteria planned investigation undertaken with the
- Identifiable, non-monetary and has no prospect of gaining new scientific or
physical substance technical knowledge and understanding
 - Cost incurred are expensed Useful Life

(See examples page 403) :>>> - Shall assess whether it has (a) finite useful
life or (b) indefinite useful life
- (b) development phase – application of - Finite useful life are amortized, indefinite are
research findings not but tested for impairment at least
- Cost incurred during development phase annually
are expense but it can be capitalized if all - (a) Finite – determine reliably the length of,
requirements are met (page 403) number of production
- (b) Indefinite – no foreseeable limit to the
(See examples page 403) :>>> asset’s useful life, when there are no legal,
- *** if its not clear whether an expenditure is contractual, competitive and other restriction
a research or a development cost, it is (See factors to be considered page 413 – 414) :>>
treated as research cost
Amortization
Research and Development (R&D) Expense
- Systematic allocation of depreciable amount
- R&D costs that do not qualify as over its useful life
capitalization are expensed and disclosed - Depreciation = PPE; amortization =
as Research and Development Expense intangible assets
(See examples pages 404 – 405) :>>> - Depreciable amount of finite useful life is
shorter of useful life and legal life
(See illustrations 405 – 407) :>>> - Amortization starts if asset is available to
the use intended by management
Subsequent Expenditures - Stops when asset is derecognized (sold or
disposed, held for sale and fully amortized)
- Capitalization of costs ceases when the - Does not cease when asset is not used
intangible asset is in condition necessary for - Amortization is expensed at profit or loss
it to be capable of operating in the manner
intended by management Amortization Method
- Subsequent expenditures are expensed
- Either straight – line, diminishing balance or
(See examples page 411) :>>> units of production, the choice depends on
the entity’s judgment
Subsequent Measurement - If not determined reliably, straight-line
method shall be used
- After initial recognition the entity chooses
either cost model or revaluation model as its Residual Value
accounting policy applied to an entire class
of intangible assets - Residual value is assumed to be zero
unless the entity can demonstrate its ability
Cost Model to sell the intangible asset before end of life
- (a) third party commitment to purchase the
- Intangible asset is carried at its cost less
asset at end of useful life
any accumulated amortization and
- (b) active market where asset can be sold
impairment losses
- PAS 38 requires annual review of
Revaluation Model amortization method
- Any change is accounted prospectively as
- Intangible asset is carried at its fair value at change in accounting estimate
date of revaluation less any subsequent
accumulated depreciation and impairment Impairment
losses
- Tested for impairment
- Reference of fair value is based on active
market Derecognition
- When there is no active market, the cost
model is used - Derecognized when it is disposed of or
when no future economic benefits from it
Separate Class of Intangible Assets - [] = unregistered service mark
- ® = registered trademark
- A class of intangible asset that is a grouping
of assets of similar nature and use Accounting for Trade Mark
- Brand names
- Mastheads and publishing title - Cost of purchased trademark includes
- Computer software purchase cost and any direct attributable
- Licenses and franchises cost preparing for intended use
- Copyrights, patents, other rights - Has indefinite useful life and not amortized
- Recipes, formulae, models, designs, - Subsequent expenses are expensed
prototypes
- Intangible assets under development (See illustrations pages 421 – 422) :>>>

Major Categories of Intangible Assets Masthead

- Market-related IA - Refer to a list, usually found on the editorial

- Customer-related IA page of a newspaper or other periodical
- Artistic-related IA - Cost includes purchase price and any
- Contract-related IA directly attributable cost
- Technology-related IA - Amortized over its useful life
- Goodwill (accounted under PFRSs) - Internally generated masthead (expensed)
- Subsequent expenditures (expensed)
Market-related (A)
Internet Domain Name (Web Site)
- Used by entities in marketing or promoting
their products and services - Is an identification label that defines the
- Trademarks or trade names realm of administrative autonomy, authority
- Newspaper mastheads or control in the internet
- Internet domain names Website Development Costs
- Noncompetition agreements
- Internal access – may be used to store
Trademark or Trade Name company policies and customer details
- Is a word, phrase or symbol that - External access – may be used for various
distinguishes particular company or product purposes, promote and advertise products
- Registration with Intellectual Property Office (See stages of development pages 423 – 424) :>>>
of the Philippines provides legal protection
for an indefinite number or renewals for - Cost incurred in developing web site is
periods of 10 years each recognized as intangible asset if (a) the
- Established trademark or name has criteria for recognition as asset (b) all
indefinite useful life and is not amortized conditions are met
- Internal – capitalized as intangible asset
Brands, Brand Name, Trademark & Trade Name - External (can place order) – capitalized
- External (cannot place order) – expensed
- Brand and brand names are often used as
synonyms of trademark and trade name
- Trademark (symbols, logos)
- Trade name (broader class of intellectual
property interest, trade dress or service
marks)
- Trade dress (overall image of a product,
packaging, design and decors)
- Service mark (same as trade mark but it is
in service not in products)

(See examples pages 418 – 419) :>>>

- ™ = unregistered trademark