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Intangible Assets 2024 - 3

The document outlines the accounting treatment for intangible assets (IAS 38), including the classification and measurement of website costs, subsequent measurement, and the amortization process. It details the stages of website development, criteria for capitalizing costs, and the distinction between finite and indefinite useful lives. Additionally, it emphasizes the importance of proper presentation and disclosure of intangible assets in financial statements.

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9 views20 pages

Intangible Assets 2024 - 3

The document outlines the accounting treatment for intangible assets (IAS 38), including the classification and measurement of website costs, subsequent measurement, and the amortization process. It details the stages of website development, criteria for capitalizing costs, and the distinction between finite and indefinite useful lives. Additionally, it emphasizes the importance of proper presentation and disclosure of intangible assets in financial statements.

Uploaded by

collemangundolf
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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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

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