Intangible Assets-PAS 38

Registered to
 Identifiable if,
Identifiable Legal right Intellectual Property
Office (IPO) 1. Separable or
 Definition Non-Monetary
Not easily convertible 2. Arise from Legal
W/out Physical
into cash or contractual
Substance
right
 Exclusion from Scope
1. Goodwill (PFRS 3)
 Control

2. Financial Assets (PFRS 9)  Future Economic

Benefit
3. Rights arising from Exploration & Evaluation (PFRS 6)
4. Expenditure on the development & Extraction of mineral resources
 Recognition
5. Intangible Assets held for sale in the OCB (PAS 2)
1. Probable
6. Intangible Asset held for sale (NCAHFS) (PFRS 5)
7. Deferred Taxes (PAS 12) 2. Measurable
8. Leases (PFRS 16)
9. Deferred Acquisition cost (PFRS 4)
10. Assets arising from Employee benefits (PAS 19)
 Intangible Assets-PAS 38
 Initial Measurement
At Cost  Not components of the cost of an Internally
generated Intangible Asset
Same concept of PPE (Initial)
1. Acquisition (Pur. Pric + DAC-T I P S I E)  (1) Selling, administrative and other general
overhead, unless directly attributed to the
2. Deferred Settlement- (Cash Pric. Equivalent) asset.
3. Business Combi. @FV
 (2) Clearly identified inefficiencies and
4. Government Grant (@FV or Nominal amount) initial operating losses incurred before an
5. Exchange (W/ or w/out commercial asset achieves planned performance.
substance
 (3) Expenditure on training staff to operate
6. Internal Generation the asset.
 Cost of materials and services used or consumed in  To assess whether an internally generated
generating the intangible asset.
intangible asset meets the criteria for
 Cost of employee benefits arising from the generation recognition, an entity classifies the
of the intangible asset.
generation into RESEARCH PHASE and
 Fees to register a legal right. DEVELOPMENT PHASE
 Amortization of patents and licenses that are used to
generate the intangible asset.
 Intangible Assets-PAS 38
 Internally Generated (DACs) Research & Development cost Silent EXPENSE
Research Phase (Search) Development Phase (Design) Production
All charge to EXPENSE Inventory (PAS 2)
• Application of Research (Design)
• Original and planned investigation undertaken
with the prospect of gaining scientific or • Technical or technological feasibility has • Commercial products
technical knowledge and understanding been established
• Prototype/model • Distribution
• Lab research(exp. Studies of related vaccine)
• Mass testing
• Searching for Application of research Findings)
• FDA Approval
• Conceptual formulation & design of possible
product/process • Legal cost and registration
• Testing or evaluation of product Can be Capitalize/Meet the capitalization criteria
Note:
1. Probable
1. Research cannot be distinguished from Dev.=
Research 2. Measurable,

2. Capitalize research if acquired from other- 3. Technical Feasibility (Model)

subsequent cost apply Gen. Rule
4. Intention to complete
3. Used PPE, Intangible Asset, Materials for R & D
(w/ alternative use-expense upon 5. w/ available funds & Resources
consumption, if w/out-fully expense
6. Asset is available for use or sale
4. Internally generated brand, mastheads,
publishing titles, Goodwill & Customer list are 7. (Include research if acquired from other-subsequent cost
not Intangible Asset-Expense apply Gen. Rule*)
 Intangible Assets-PAS 38
 Subsequent Measurement Useful life
Initial to Subsequent Usual-hard
 Cost Which ever is shorter
determine the  (Acc. Amortization.) Legal Life (20 years)
Fair value of IA  (Acc. Imp) Residual value=zero
At Cost At cost CA/CV/BV
 Unless with Active
Revaluation Model (if with market or 3rd party
active market) committed to buy
 Amortization shall begin when the asset is
 Amortization is the systematic available for use and ceases when the asset
allocation of the depreciable amount is derecognized or when classified as held for
of an intangible asset over the asset's sale whichever is earlier.
useful life. NOTE: Amortization is an
attempt at cost allocation rather than
asset valuation.  The residual value of an intangible asset shall
be presumed to be zero, except:
 Rule: ONLY intangible assets with FINITE OR (1) When a third party is committed to buy the
LIMITED LIFE are amortized over their useful intangible asset at the end of its useful life.
life. Intangible assets with INDEFINITE LIFE (2) When there is an active market for the
are NOT AMORTIZED but are TESTED FOR intangible asset so that its expected residual
IMPAIRMENT at least annually and value can be measured and it is probable that
whenever there is an indication that the there will be a market for the asset at the end of
intangible asset may be impaired its useful life.
 Intangible Assets-PAS 38
 According to PAS 38, the amortization  Subsequent Cost
used shall reflect the pattern in which  AS A RULE, a subsequent expenditure on an intangible
the asset's future economic benefits asset shall be recognized as EXPENSE.
are expected to be consumed by the  The reason is that most subsequent expenditures are
entity. If that pattern cannot be likely to maintain only the expected future economic
determined reliably, the STRAIGHT-LINE benefits embodied in the intangible asset.
METHOD shall be used. NOTE:
 However, the subsequent expenditure may be
Amortization method based on capitalized or added to the cost of the intangible asset
revenue is strictly prohibited. (REVENUE if the following recognition criteria for an intangible
METHOD IS NOT ALLOWED) asset are met:
 The amortization charge for each (a) It is probable that future economic benefits that are
period shall be recognized in profit or attributable to the subsequent expenditure will flow to the
entity.
loss unless amortization is required to
be included in the carrying amount (b) The subsequent expenditure can be measured
reliably.
of another asset.
 IMPAIRMENT OF INTANGIBLE ASSETS
 Detailed discussion of impairment of intangible assets is within FAR 13 - IMPAIRMENT OF ASSETS. As an
introduction, impairment of intangible assets depends whether the asset has a finite or indefinite life.
• FINITE LIFE-An intangible asset is tested for impairment
• INDEFINITE LIFE - An intangible asset is tested for impairment ANNUALLY and when impairment
indicators are present.
 Intangible Assets-PAS 38
 Major Intangible Assets: Under (US GAAP)
1. Marketing Related
A. Trademark B. Mastheads
 Symbol, Sign, Logo, or Name that is  Masthead may refer to, a list, usually found
Legally registered (IPO) representing on the editorial page of a newspaper or
a company or product other periodical, listing the publisher, editorial
board, advertising rates, etc.
 Example: Logo of Jollibee, Google,
Facebook , etc.
 Purchased Separately-Pur. Cost+DACS
 Brand Name or Trade Name
 Internally Gen.-Expense outright
 Separately-Pur. Cost+DACS
 Internally Gen.-DACS+Filing cost
• Legal life is 10 years but there is an
automatic renewal
• Indefinite Life
• But subject to impairment testing
every Year end.
 Intangible Assets-PAS 38
 Major Intangible Assets: Under (US GAAP)
1. Marketing Related
C. WEBSITE DEVELOPMENT COSTS

Purpose of the website Capitalize as intangible asset?

o Internal o Yes

o External and customers can place orders o Yes

o External and customers cannot place orders o No

Stages of website Treatment of the costs

o Planning stage (research stage) o Expensed outright
o Application and infrastructure stage (development stage) o Intangible asset if all criteria were met
o Graphical design stage (development stage) o Intangible asset if all criteria were met
o Content development stage (advertising) o Expensed outright
o Operating stage (subsequent costs) o Expensed unless criteria were met
 Intangible Assets-PAS 38
 Major Intangible Assets: Under (US GAAP)
2. Customer-Related 3. ARTISTIC-RELATED
CUSTOMER LIST COPY RIGHT
 A customer list is a customer  A copyright is an exclusive right granted
database containing the name, by the government to the author,
contract information, order history composer or artist, enabling the grantee
and other vital and social statistics, to publish, sell or otherwise benefit from
the literary, musical or artistic work.
such as birth, death and even
sickness. The cost of customer list  The cost assigned to copyright consists of
acquired through purchase all expenses incurred in the production of
includes purchase price and any the work including those required to
establish or obtain the right. Where the
directly attributable cost of copyright is purchased, the cost includes
preparing the asset for its intended the cash paid, and directly attributable
use. The costs of internally cost necessary for the intended use.
generated customer list are
 NOTE: Under the Intellectual Property
recognized as expenses. Code of the Philippines, the term of
protection for copyright is during the
lifetime of the author and for 50 years
after death.
 Intangible Assets-PAS 38
 Major Intangible Assets: Under (US GAAP)
5. CONTRACT-RELATED
A. FRANCHISE
 Under a franchise agreement, one  Amortization of franchise:
party called the franchisor grants • Granted for a definite period -
certain rights to another party called amortized over the useful life or definite
the franchisee. period, whichever is shorter.
 The cost of the franchise includes the • Granted indefinitely or perpetually -
lump sum payment for the franchise not be amortized but tested for impairment
and all legal fees and expenses at least annually.
incurred in connection with the
franchise acquisition. The lump sum
payment is known as the initial
franchise fee and therefore the initial
cost of the franchise. If the franchise
agreement requires the franchisee to
make periodic payment to the
franchisor based on the franchisee's
revenue, such payment is treated as
outright expense. This payment is
known as the periodic franchise fee.
 Intangible Assets-PAS 38
4. Franchise Right/License
Franchisor Franchisee
 Right to operate a business Focus
or sale product
 Example: 7/11, Potato Initial Franchise Continuing/perio
Fee (IFF) dic franchise fee
corner, dunkin donuts, etc.
Can consider Monthly or % of
 Subject to amortization IA sales (Charge
to expense
• Term of the Franchise or
Useful life
 Intangible Assets-PAS 38
 Major Intangible Assets: Under (US GAAP)
Leasehold/Lease Right/Lease Bonus
5. CONTRACT-RELATED
Property
B. LEASEHOLD Lessor Leasee
 A leasehold is the right acquired by the lessee Consideration
by virtue of a contract of lease to use the
specific property owned by the lessor for a
definite period of time in consideration for a
certain sum of money. The cost of leasehold Leasehold Improvements (PPE)
shall be amortized over the life of the lease. If
the cost is not very substantial, it may be W/out Residual Value
charged to outright expense.
 NOTE: Leasehold improvements are alterations Depreciation over useful life or least
or modifications on the leased property made term Whichever is shorter
by the lessee. This is an item of PPE NOT an
intangible asset. The cost of leasehold
improvements, ignoring the residual value, shall
be depreciated over the life of the lease or life
of the improvements, whichever is shorter.
Where the renewal is highly probable or certain
it may be appropriate to consider the renewal
option in determining the extended lease term.
 Intangible Assets-PAS 38
 Major Intangible Assets: Under (US GAAP)
6. TECHNOLOGY-RELATED
A. PATENT
 A patent is an exclusive right granted by the  Amortization period of patent:
government to an inventor enabling him to control the
manufacture, sale or other use of invention for a • The original cost shall be amortized
specified period of time. The legal life of patent is 20 over the legal life (20 years) or useful
years from the date of filing the application. This is in life, whichever is shorter.
accordance with R.A. No. 8293, or the Intellectual
Property Code of the Philippines. • A competitive patent acquired to
protect an original patent shall be
 A patent can be:
amortized over the remaining life of the
• Acquired separately - the cost includes the purchase original patent.
price and any directly attributable expenditure necessary
in preparing the asset for the intended use. • If a related patent is acquired in
• Internally developed - the cost includes the licensing order to extend the life of the old
and other related legal fees in securing the patent rights. patent, the cost of the related patent
Any research and development costs are not capitalized. and any unamortized cost of the old
 NOTE: Legal fees and other costs of successfully
patent shall be amortized over the
prosecuting or defending a patent shall be expensed extended life.
immediately
 Intangible Assets-PAS 38
 Major Intangible Assets: Under (US GAAP)
 Costs incurred in creating a computer
6. TECHNOLOGY-RELATED software product shall be charged to
B. COMPUTER SOFTWARE expense when incurred until a technical
feasibility has been established for the
 Computer software is a generic term for product.be amortized over the extended
organized collections of computer data and life.
instructions, often broken into  Actually, this is the research stage where
two major categories: there is so much uncertainty about the
future economic benefits. Accordingly, all
• System software provides basic non-specific the research costs shall be expensed
functions of the computer. outright. As a minimum, technological
feasibility is established when an entity has
• Application software-used by users to produced either a detailed program design
accomplish specific tasks. of the software or a working model.
 Classification:
• Integral part of PPE - not an intangible asset but  After technological feasibility has been
rather PPE. established, capitalizable software costs
include the cost of coding and testing and
• Used for licensing or rental to others - Intangible the cost to produce the product masters.
asset  The costs incurred to actually produce the
• Reproduced from product masters for resale – software from masters and package the
software for sale shall be charged as
Inventories inventory.
 Intangible Assets-PAS 38
 Major Intangible Assets: Under (US GAAP)
7. Others
Goodwill
 Goodwill arises when earnings exceed normal earnings by reason of good name, capable staff and
personnel, high credit standing, reputation for fair dealings, reputation for superior products, favorable
location and a list of regular customers.
 Only goodwill acquired in a business combination can be capitalized as an intangible asset. Internally
developed goodwill is not recorded.

 1. Residual Approach - Under the

residual approach, goodwill is  2. Direct approach-Under direct approach,
measured by comparing the purchase goodwill is directly computed as the excess of
price for the entity with the net average earnings over normal earnings using
tangible and identifiable assets,
meaning total assets excluding the following methods:
goodwill minus liabilities assumed.  (a) Purchase of excess earnings
(PURCHASE PRICE-FV OF NET ASSETS)
 If the purchase price or consideration  (b) Capitalization of excess earnings
transferred is less than the net amount  (c) Present value of excess earnings
of the identifiable assets acquired and
liabilities assumed, the difference is  (d) Capitalization of average earnings
GAIN ON BARGAIN PURCHASE
presented in profit or loss.
 Intangible Assets-PAS 38
 Other Accounting Issued
 Subsequent Cost  Impairment
GR: Expensed Outright Finite - When Impairment Indicator Exist
Exception: Cost of IA
Probable
Indefinite
Measurable
Annually tested
When Impairment Indicator Exist
THE END
 Intangible Assets-PAS 38
2. Trademark 3. Copy Right
 Symbol, Sign, Logo, or Name  Exclusive right given to
that is Legally registered (IPO) authors, artist, composers,
representing a company or etc.
product
 Example: Logo of Jollibee,  Books, Songs, videos, etc.
Google, Facebook , etc.  Subject to amortization
 Brand Name or Trade • Pattern of Benefits;
Name • If not available, straight line
 Not subject to amortization
• Legal life is 10 years but there
is an automatic renewal
• Indefinite Life
• But subject to impairment testing every
Year end.
 Intangible Assets-PAS 38
4. Franchise Right/License
Franchisor Franchisee
 Right to operate a business Focus
or sale product
 Example: 7/11, Potato Initial Franchise Continuing/perio
Fee (IFF) dic franchise fee
corner, dunkin donuts, etc.
Can consider Monthly or % of
 Subject to amortization IA sales (Charge
to expense
• Term of the Franchise or
Useful life

5. Goodwill-(PAS 3 not PAS 38) -only arises from business combination (AFAR)
 Excess payment
• GW=Purchase price-Fair Value of Net Assets
 Unidentifiable
 Intangible Assets-PAS 38
6. Others Own use IA
Classification
a. Computer Software Sale to Inventory
(Purpose) others
 There is technological feasibility.
Integral
(Expense if w/out)
part of the PPE
 Subject to Amortization (Benefits/Useful life) Machine
b. Website Own use IA
Classification
Promotion Advertising Expense
For sale Inventory
 Subject to Amortization (Benefits/Useful life)
c. Customer list Purchased IA
 Database of Customer
Internally Expense
 Subject to Amortization generated
(Benefits/Useful life)
 Impairment (PAS 36)
Impairment rules:
Indicators
Test for
Impairment
W/ W/out
Definite We amortize ✓ X
Useful life P, CR & Fran
Indefinite No amortization ✓ ✓
GW & TM
 Intangible Assets-PAS 38
Identifiable
 Definition Non-Monetary
W/out Physical Useful life
Substance Which ever is shorter
Legal Life (20 years)
Initial to Subsequent
Residual value=zero
 Measurement  Cost
 (Acc. Amortization.)
At Cost At cost Usual-hard determine
the Fair value of IA  (Acc. Imp)
Same concept of
PPE (Pur. P + DAC) Revaluation
Model CA/CV/BV 
Research & Development cost Silent EXPENSE
5 Major Intangible Assets:
Research Phase Development Phase Production
1. Patent • Discovery of new Application of Research
Give an inventor the right to
•
• Commercial
 knowledge Technical or technological feasibility
prevent other people from using
•
has been established products
or selling an invention • Studies of related
• Prototype/model Distribution
2. Trademark
vaccine •
 Example: Covid
Vaccine • Lab research
• Mass testing
Inventory 3. Copyright
• FDA Approval
(PAS 2)
• Clinical testing • Legal cost and registration 4. Franchise
Can be Capitalize/Meet the
All charge to EXPENSE capitalization criteria 5. Goodwill