Intangible Assets
Nature An intangible asset is an identifiable non-monetary asset without physical substance.
Essential criteria:
Identifiable
a) Separable – can be sold, transferred, licensed, rented or exchanged individually or
together with a related contract regardless of intention
b) Contractual or legal rights - regardless of whether separable or not
Control
a) Power to obtain economic benefits; and
b) Restrict the access of others to those benefits
Future economic benefit
a) Revenues
b) Cost savings
c) Other benefits
Initial recognition An entity shall recognize an intangible asset if:
Definition It meets the definition of an intangible asset
Future economic benefit It is probable that future economic benefit will flow to the entity.
Reliably measurable Its cost can be measured reliably
cost
Initial measurement An intangible asset shall be measured initially at cost.
Subsequent An intangible asset shall be subsequently measured using cost model or revaluation model.
measurement
Notes:
(1) Revaluation model is allowed if fair value of the intangible asset can be determined by
reference to an active market.
(2) The residual value of an intangible asset with a finite useful life shall be assumed to be
zero unless there is a commitment by a third party to purchase the asset at the end of
its useful life there is an active market for the asset and residual value can be
determined by reference to that market and it is probable that such a market will exist
at the end of the asset’s useful life.
(3) There is a rebuttable presumption that an amortization method that is based on the
revenue is inappropriate. (exception: the intangible asset is expressed as a measure of
revenue, or it can be demonstrated that revenue and the consumption of the economic
benefits of the intangible asset are highly correlated.)
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Modes of Acquisition
Separate Purchase price, including import duties and non-refundable purchase taxes, after
acquisition deducting trade discounts and rebates; and
Directly attributable cost of preparing the asset for its intended use
Examples of directly attributable costs are:
costs of employee benefits arising directly from bringing the asset to its working condition
professional fees arising directly from bringing the asset to its working condition
costs of testing whether the asset is functioning properly
Examples of expenditures that are not part of the cost of an intangible asset are:
costs of introducing a new product or service (including costs of advertising and
promotional activities)
costs of conducting business in a new location or with a new class of customer (including
costs of staff training);
administration and other general overhead costs
costs incurred while an asset capable of operating in the manner intended by management
has yet to be brought into use
initial operating losses, such as those incurred while demand for the asset’s output builds
up.
Deferred credit (1) Cash price equivalent
terms (2) Present value of cash flows
Part of business Fair value
combination
Government grant (1) Fair value
(2) Nominal amount
Exchange of With commercial substance - Fair value of assets given up plus cash paid or less cash received
assets Without commercial substance - Carrying amount of asset given up plus cash paid or less cash
received
Goodwill Acquired from business combination (excess of consideration over FVNAA) – recognized
Internally generated – not recognized
Internally The cost of an internally generated intangible asset comprises all directly attributable costs
generated necessary to create, produce, and prepare the asset to be capable of operating in the manner
intended by management.
Examples of directly attributable costs are:
costs of materials and services used or consumed in generating the intangible asset
costs of employee benefits arising from the generation of the intangible asset
fees to register a legal right
amortization of patents and licenses that are used to generate the intangible asset.
The following are not components of the cost of an internally generated intangible asset:
selling, administrative and other general overhead expenditure unless this expenditure
can be directly attributed to preparing the asset for use;
identified inefficiencies and initial operating losses incurred before the asset achieves
planned performance; and
expenditure on training staff to operate the asset.
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Identifiable intangible assets
Patent An exclusive right granted for an invention, giving the holder control over use/production for a limited
period.
Internally developed:
Licensing fees - capitalize
Other legal fees to secure the patent – capitalize
Cost of research and development- expense
Purchased:
Purchase price and any directly attributable cost - capitalize
Legal fees in lawsuit:
Whether successful or not - expense
Trademark Legally registered symbol, word, phrase, or design that identifies and distinguishes the source of goods
or services of one entity from others.
Internally developed:
Design cost - capitalizable
Registration fees - capitalizable
Filing fees - capitalizable
Other fees to secure the trademark – capitalizable
Research cost - expense
Purchased:
Purchase price and any directly attributable cost - capitalize
Legal fees on lawsuit:
Whether successful or not - expensed
Copyright Legal right granted to the creator of original literary, artistic, musical, or software works, giving exclusive
control to reproduce, publish, distribute, perform, or adapt the work for a specified period.
Internally developed:
All expenditures incurred in the production of the work including those required to establish or
obtain right - capitalize
Purchased:
Purchase price and any directly attributable cost - capitalize
Franchise Contractual right granted by a franchisor to a franchisee to operate a business using the franchisor’s
brand, trademark, systems, and know-how, usually in exchange for fees.
Initial franchise fees - capitalize
Continuing franchise fees - expense
Computer Integral part of the related hardware – PPE
software Not an integral part of the related hardware – Intangible asset
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Research and development cost
Start of project Technical feasibility End of project
R&D Expense Intangible asset
Expenditure on an intangible item that was initially recognized as an expense shall not be recognized as part of the
cost of an intangible asset at a later date.
Research activities Development activities
activities aimed at obtaining new knowledge; the design, construction and testing of
the search for, evaluation and final selection of, pre-production or pre-use prototypes and models;
applications of research findings or other knowledge; the design of tools, jigs, molds and dies involving
the search for alternatives for materials, devices, new technology;
products, processes, systems or services; and the design, construction and operation of a pilot plant
the formulation, design, evaluation and final that is not of a scale economically feasible for
selection of possible alternatives for new or commercial production; and
improved materials, devices, products, processes, the design, construction and testing of a chosen
systems or services. alternative for new or improved materials, devices,
products, processes, systems or services.
PPE or intangible asset used for research and development
No alternative future use: Entire cost is charged to R&D expense
With alternative future use: Depreciation or amortization is charged to R&D expense
Internally developed computer software
Start of project Technological feasibility Ready for commercial production Sale
Expense Intangible asset Inventories
Cost of coding and testing Cost to reproduce product
Cost of producing product master master
Cost of packaging
Amortization of computer
Detailed program design or software
working model
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Website costs
Phases Nature of expenditure
Planning Includes:
Undertaking feasibility studies
Defining hardware and software and specifications
Evaluating alternative product and suppliers
Selecting preferences
(similar to research phase)
Application and infrastructure Includes:
development Obtaining a domain name
Purchasing and developing hardware and operating software
Installing developed applications
Stress testing
Graphical design development Includes designing (e.g. layout and color) the appearance of web pages.
Content development Includes creating, purchasing, preparing (e.g. creating links and identifying tags)
and uploading information, either textual or graphical in nature, on the web site
before the completion of the web site’s development
Operating Includes:
Updating graphics and revising content
Adding new functions, features and content
Registering the web site with search engines
Backing up data
Reviewing security access
Analyzing usage of the web site
Application and
infrastructure
Graphical design
development Content Operating
Planning development
development
Expense Capitalized if 6 criteria are Expense
Note: met.
(1) If website is developed to advertise and promote an entity’s own products and services, expenditures in
development stage is expensed.
(2) Expenditure on purchasing, developing, and operating hardware is accounted as PPE.
Amortization and impairment
Finite useful lives Indefinite useful lives
Amortization Legal life or useful life, whichever is shorter Not amortized
Impairment If there are impairment indicators Annually and if there are impairment indicators
Identifiable intangible asset Legal life
Patent 20 years
Trademark 10 years but may be renewed indefinitely
Copyright Life of the author plus 50 years after death
Additional consideration for patents:
Acquisition of competitive patent Competitive patent and old patent shall be amortized over the
remaining life of the old patent.
Acquisition of related patent (useful life of Related patent and remaining carrying amount of old patent should
old patent extended) be amortized over the extended life.
Acquisition of related patent (useful life of Old patent – amortized over its own remaining life.
old patent not extended) New patent – amortized over its own life.
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Problem 1
An entity presented the following information for the year ended December 31, 2025:
Organization costs incurred during start-up of operations P120,000
Initial operating losses incurred during start-up of operations 350,000
Training costs incurred during start-up of operations 200,000
Cost incurred in advertising and promotional activities 150,000
Cost incurred in developing a patent 500,000
Legal cost incurred in securing a patent 80,000
Legal cost incurred in successful legal suit to protect the patent 100,000
Cost of purchasing a patent 600,000
Cost of developing a trademark 250,000
Cost of purchasing a trademark 300,000
Cost of purchasing a copyright 180,000
Initial franchise fees 400,000
Continuing franchise fees 100,000
Internally generated goodwill 700,000
Goodwill acquired from business combination 2,000,000
Research and development cost 900,000
Costs incurred in the formulation, design and evaluation of new product 350,000
In-process R&D acquired in business combination 600,000
Cost internally generated brand, mastheads, publishing titles and customer lists 450,000
Cost to acquire customer list 500,000
Computer software for a computer controlled machine tool that cannot operate without that specific
software 300,000
Operating system of a computer 200,000
Cost to acquire stand-alone computer software 250,000
Lease prepayments 150,000
How much is the total intangible assets including goodwill?
A. 4,910,000 C. 5,160,000
B. 5,010,000 D. 5,360,000
Problem 2
An entity presented the following information for the year ended December 31, 2025:
Salaries of scientists and laboratory staff engaged in basic research P120,000
Laboratory supplies consumed in investigating new materials 35,000
Laboratory supplies purchased for future research 20,000
Cost of literature survey on existing technologies 15,000
Cost of exploratory investigation of new chemical compounds 50,000
Expenditures to obtain new scientific knowledge (e.g., feasibility tests, trial experiments) 40,000
Consulting fees paid to experts for exploratory studies 25,000
Reimbursable costs incurred for research studies performed for another entity 30,000
Utilities consumed in laboratory during exploratory experiments 12,000
Marketing research to study consumer preferences 18,000
Radical modification to the formulation of an existing product 50,000
Troubleshooting cost during commercial production 22,000
Cost of laboratory equipment used exclusively for one research project 100,000
Cost of testing machine to be used in various research projects, estimated useful life of 5 years 200,000
Cost of prototype designs prepared for research alternatives 28,000
Cost of designing and testing a pre-production prototype of a new device 85,000
Cost of safety inspection of the prototype model 10,000
Cost of revising design flaws in the prototype model 15,000
Cost of designing new jigs, molds and dies for a new manufacturing process 60,000
Cost of routine and other periodic design of jigs, molds and dies 20,000
Cost of operating a pilot plant not yet feasible for commercial production 100,000
Cost of operating a plant already feasible for commercial production 300,000
Cost of designing and testing a chosen alternative for improved product materials 75,000
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What is the total amount of the research and development expense for 2025?
A. 740,000 C. 878,000
B. 860,000 D. 880,000
Problem 3
The following are the costs incurred by a software development entity in 2025:
Salaries of software developers researching new algorithms 120,000
Professional fees to consultants assisting in research phase 25,000
Costs incurred to establish a detailed program design or working model 40,000
Salaries of programmers coding modules after technical feasibility is established 200,000
Cost of testing software after technical feasibility is established 60,000
Cost of producing product master 50,000
Cost of duplicating software for sale 30,000
Cost of packaging software for sale 15,000
Cost of user manuals and training materials sold with the product 20,000
Statement 1: The total amount of the research and development expense is P185,000.
Statement 2: The total amount of capitalizable software cost is P310,000.
Statement 3: The total amount of inventoriable cost is P65,000.
A. Only 1 statement is correct. C. All of the statements are correct.
B. Only 2 statements are correct. D. All of the statements are incorrect.
Problem 4
The following costs were incurred by an entity in developing its website:
Undertaking feasibility studies P80,000
Evaluating alternative products and suppliers 45,000
Purchasing or developing hardware 500,000
Obtaining a domain name 25,000
Installing developed applications on the web server 120,000
Stress testing 60,000
Designing the appearance of web pages 150,000
Creating and uploading of information (links and identifying tags) 90,000
Updating graphics and revising content 55,000
Adding new functions, features and content 110,000
Registering the web site with search engines 30,000
Statement 1: Assuming the website cost is developed solely or primarily for advertising the entity’s own products, the
capitalizable cost of the website is P0.
Statement 2: Assuming the website is developed for purpose other than promoting or advertising the entity’s own
product or service and expenditures directly attributed to preparing the website to operate in the manner intended by
management, the capitalizable cost of the website is P445,000.
A. Only statement 1 is correct. C. Both statements are correct.
B. Only statement 2 is correct. D. Both statements are false.
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Problem 5
On January 1, 2024, an entity incurred P180,000 in research and development costs in the process of developing a
new pharmaceutical invention, which eventually led to a patentable technology. On January 1, 2025, the company
incurred legal fees of P240,000 to successfully register the patent. The legal life of the patent is 20 years, and the
company estimates a useful life of 15 years for amortization purposes. On January 1, 2026, the entity incurred P75,000
in legal fees to defend the patent against an infringement claim, but the lawsuit was unsuccessful and no future
economic benefit is expected from the patent.
Statement 1: The capitalizable cost of the patent is P240,000.
Statement 2: The total expense in relation to the patent in 2026 is P274,000.
A. Only statement 1 is correct. C. Both statements are correct.
B. Only statement 2 is correct. D. Both statements are incorrect.
Problem 6
On January 1, 2025, an entity incurred P180,000 in legal fees to successfully register a patent for a new technological
invention. The legal life of the patent is 20 years, and the company estimates a useful life of 12 years for amortization
purposes. On January 1, 2027, the entity acquired a competitive patent from another company for P80,000.
On December 31, 2028, management assessed the patent for impairment due to technological obsolescence. The
expected future cash flows from the patent over the next 5 years are estimated to be P24,000 per year. The appropriate
discount rate is 10%. The present value of 1 at 10% for 5 periods is 0.62, and the present value of an ordinary annuity
of 1 at 10% for 5 periods is 3.79.
Statement 1: The amortization expense for 2027 is P23,000.
Statement 2: The impairment loss for 2028 is P116,040.
A. Only statement 1 is correct. C. Both statements are correct.
B. Only statement 2 is correct. D. Both statements are incorrect.
Problem 7
During 2024, an entity incurred various costs in connection with developing a new trademark. The entity spent P125,000
on market research to select an appropriate brand name. On January 1, 2025, the entity paid P180,000 in legal fees to
register the trademark and P100,000 design cost. An advertising campaign costing P120,000 was also launched to
promote the brand.
The legal life of the trademark is 10 years, but management expects to renew the registration indefinitely, and the
trademark represents a core brand that the entity intends to maintain and defend over the long term.
On December 31, 2025, the trademark is test for impairment. The entity expects to generate cash flows of P12,000 per
year. The appropriate discount rate is 8%. The present value factor of an ordinary annuity of 1 at 8% for 10 periods is
6.71.
Statement 1: The amortization expense for 2025 is P28,000.
Statement 2: The impairment loss for 2025 is P130,000.
A. Only statement 1 is correct. C. Both statements are correct.
B. Only statement 2 is correct. D. Both statements are incorrect.
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Problem 8
On January 1, 2025, an entity entered into a franchise agreement for a new business outlet for a period of 10 years.
The agreement required the payment of an initial franchise fee of P500,000, of which P200,000 was paid as a
downpayment on January 1, 2025. The remaining P300,000 is payable in three equal annual installments, starting on
January 1, 2026. The discount rate for the note is 8% per year. For reference:
Present value of 1 at 8% for 3 periods: 0.79
Present value of an ordinary annuity of 1 at 8% for 3 periods: 2.58
In addition, the franchise agreement requires the entity to pay continuing franchise fees of 5% of monthly gross sales.
The entity reported gross sales of P2,400,000 for 2025.
Statement 1: The initial cost of the franchise is P458,000.
Statement 2: The total expense in relation to the franchise is P165,800.
A. Only statement 1 is correct. C. Both statements are correct.
B. Only statement 2 is correct. D. Both statements are incorrect.
Problem 9
On January 1, 2025, an entity acquired the copyright to a bestselling educational software program for P300,000.
Although the copyright has a legal life of 50 years, management assessed that the copyright will only generate
economic benefits for the next 10 years.
During 2025, the entity also incurred initial operating losses of P50,000 while setting up the software distribution
operations.
Statement 1: The initial cost of the copyright is P350,000.
Statement 2: The amortization expense for 2025 is P35,000.
A. Only statement 1 is correct. C. Both statements are correct.
B. Only statement 2 is correct. D. Both statements are incorrect.
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