INTACC3 – INTANGIBLE ASSETS

INTANGIBLE ASSETS - The power of the entity to obtain the

future economic benefits flowing from the
PAS 38 par. 8 intangible asset and restrict the access
of others to those benefits
- Intangible Assets defines as an
identifiable nonmonetary asset without
physical substance.
FUTURE ECONOMIC BENEFITS
- The intangible asset must be controlled
by the entity as a result of past event and - May include revenue from the sale of
from which future economic benefits are products or services, cost savings or
expected to flow to the entity. other benefits resulting from the use of
the asset by the entity
3 Criteria in the definition of Intangible Asset:
RECOGNITION OF IA
1. IDENTIFIABILITY
2. CONTROL a. Probable that future economic
3. FUTURE ECONOMIC BENEFITS benefits attributable to the asset
will flow to the entity
Measurement:
b. Cost of the intangible asset can
Initial - @ Cost be measured reliably
Subsequent – Cost Model/ Revaluation Model INITIAL MEASUREMENT
IDENTIFIABILITY = Initially @ Cost
- The IA must be identifiable in order to 1. Separate Acquisition
distinguish it clearly from goodwill - Acquired separately, the cost of the IA
- With nonphysical items, there may be a can be measured reliably, particularly so
problem with identifiability if the purchase consideration is in the
form of cash or other monetary assets.
Asset is IDENTIFIABLE:
Separately acquired:
1. It is SEPARABLE – capable of being
separated from the entity and sold, a. Purchase Price
transferred, licensed, rented, or b. Import duties and nonrefundable
exchanged, either individually or together purchase taxes
with a related asset or liability c. Directly attributable costs of
2. Arises from CONTRACTUAL OR preparing the asset for the intended
OTHER LEGAL RIGHTS – whether use
these rights are transferrable or
Directly Attributable Costs:
separable from the entity or from other
rights and obligations. a. Employee Benefits
b. Professional Fees
CONTROL c. Functioning Test if Asset properly
- “It must be under the control of the entity works
as a result of past event”
Costs not capitalizable:
INTACC3 – INTANGIBLE ASSETS

a. Introducing new product or service C. Advertising and promotional

b. Conducting business in new location costs
c. Administration and other general D. Business
overhead costs relocation/recognition costs
d. Asset capable of operating in a Subsequent Expenditures
manner intended by management - Expensed
e. Initial operating loss - Capitalized, If recognition criteria are met

2. Acquisition as part of Business Identifiable Intangible Assets

Combination - acquired through purchase
= Fair Value on the date of Acquisition - there is a transfer of legal right
- if the asset could sell, transferred, licensed,
3. Acquisition by government grant rented or sold separately = identifiable
Initially recorded at either:
A. Fair Value Examples of Identifiable Assets:
B. Nominal amount or zero. A. Patent
Plus, direct costs B. Copyright
C. Franchise
4. Acquisition Exchange D. Trademark or brandname
a. With commercial substance: E. Customer list
FV of asset given-up + Cash Payments F. Computer software
G. Broadcasting license, airline right and fishing
b. Without commercial substance: right
CA of Asset given-up + Cash Payments Examples of Unidentifiable Asset
A. Goodwill
5. Internally generated Intangible Asset
Classification of Intangible Assets
- All directly Attributable cost
A. IA with Definite Life
B. IA with Indefinite Life
NOTE! Internally generated brands,
mastheads, publishing titles, customer lists
IA with Definite Life
and items similar in substance
- Amortized over its Useful Life
- Not an intangible asset
- Tested for Impairment
- Components of Internally generated
*Whenever there is indication of
goodwill
Impairment
- Expensed
IA with Indefinite Life
Expenditures that do not meet the recognition
criteria - Not Amortized
-Expensed
- Tested for Impairment
Examples:
A. Start-up costs *At least annually
B. Training costs
INTACC3 – INTANGIBLE ASSETS

Amortization = NOTE!
Intangible Asset−Residual Value
Useful Life  Research and Development Cost –
Expense
Amortization Expense xx  Cost of Litigation (prosecuting or
Intangible Asset xx defending a patent)
o Successful – Expensed
Derecognition of IA o Unsuccessful – Loss
a. Disposal Amortization of Patent
b. No future economic benefits
*Whichever is SHORTER
Goodwill
Legal Life or Useful Life
- Most intangible of all assets
- Developmentally generated GW Competitive Patent (to protect the original patent)
o Not recognized as an asset - Amortized over the remaining life of the
- Purchased GW OLD Patent
o Recognized as an Asset
Related Patent (to extend the life of the old
Measurement of Goodwill patent)
o Residual Approach  Related Patent and Unamortized Cost of
o Direct Approach OLD Patent
o Amortized over the EXTENDED
LIFE
 If no extension of life:
IDENTIFIABLE ASSETS
o New Patent – amortized over its
PATENT
own life
- Legal life of 20 years o Cost of Old Patent – amortized
- Technology-based asset over the remainder of its life
Cost of Patent
1. Acquired by Purchase TRADEMARK/TRADENAME/BRANDNAME
a. Purchase Price - Market-related Intangible Asset
- Legal life o 10 years
b. Import duties
o Maybe renewed for periods of 10
c. Nonrefundable purchase taxes years each
o Indefinite UL
d. Direct costs
- Not amortized
2. Internally developed - Tested for Impairment at least annually
- Licensing and other related legal fees
INTACC3 – INTANGIBLE ASSETS

COPYRIGHT
- Artistic-related Intangible Asset BROADCASTING LICENSE
- Amortized over its UL
a. Finite UL
- Intellectual Property Code of the
Philippines - Amortized over its UL
o Term of protection for copyright
- Tested for impairment
 During the life of the
author and for 50 years b. Indefinite UL
after death
- No amortization
-Tested for impairment at least annually
FRANCHISE
- Contract-based Intangible Asset
AIRLINE RIGHT
Definite Period: - Route authority
a. Amortization - Renewed every 5 years
- Indefinite UL
*Whichever is SHORTER
- No amortization
Useful Life or Definite Period - Tested for Impairment annually
b. Tested for impairment (If there is indication)
Indefinite Period: CUSTOMER LIST
a. Not Amortized  Internally generated – Not an IA
 Acquired customer list – recognized as IA
b. Tested for impairment at least annually
o Amortized over its UL
o Tested for Impairment
LEASEHOLD IMPROVEMENT Origination cost – Expensed
- Part of PPE Start-up cost - Expensed
- Depreciated
Share Issuance Cost
*Whichever is SHORTER
Charge to:
Lease Term or Life of the Improvement
1. Share Premium
- Residual Value – Ignored
2. Retained Earnings
- Renewal Option:
o Uncertain – Ignore Website development cost – Expensed
o Certain/Highly Probable –
extension is considered to
determine the extended lease RESEARCH AN DEVELOPMENT COST
term
INTACC3 – INTANGIBLE ASSETS

Research Phase o Integral part of a comp =

PPE
- To discover new knowledge
- Expensed
Development Phase
- Application of research findings
- Expensed, or
- Capitalized (only if it complies with the
criteria)
NOTE!
If cannot be distinguished as
Research/Development phase
- Treated as Research Phase

Materials, Equipment, and Intangible Asset

a. Has no alternative future use – Expensed
b. Has alternative future use – Capitalized
 Charge to Expenses:
o Cost Materials Used
o Depreciation of Equipment
o Amortization of IA

COMPUTER SOFTWARE
 Cost Incurred:
o Before technical feasibility –
Expensed
o After technical feasibility –
Capitalized
o Actual production of
software – Inventory
 Amortized over its UL
 Tested for Impairment
 Classification
o As a rule = IA
o Purchase for resale = Invtry.