INTANGIBLE ASSETS
Definition an identifiable, nonmonetary asset without physical substance
and Scope
exclusions
Identifiability separable a. Goodwill - PFRS3
Criteria arises from legal or contractual right b. Financial Asset - PFRS9
Control power to obtain future economic benefits c. Rights arising from E&E - PFRS6
power to restrict access of the economic benefits d. Dev. and Extraction expenditures - PFRS 6
future economic benefits revenue or cost savings
Recognition probable it is probable that economic benefits will arise
measurable economic benefit is measurable
Measurement
Initial at cost Subsequent
a. Separate Acquisition Purchase Price + DACs - Discounts/Rebates GR: Cost Model cost - amortization - impairment loss
b. Deferred Settlement Cash Price Equivalent XPN: Revaluation Mode cost - subs. amortization - subs. impairment
c. Through BusCom Fair Value if active market is available
d. Through Govt Grant Fair Value entity opted for Reval
Zero (if no FV)
e. Through Exchange w/ commercial substance Amortization Factors Amortizable Amount Cost - Residual Value
FV of Asset Given +/- BOOT Residual Value GR: Presumed to be Zero
FV of Asset Received XPN: at the end of life of IA:
CA of Asset Given +/- BOOT there is 3rd party
w/o commercial substance committed to buy
CA of Asset Given +/- BOOT there is active market
f. Internally Generated Cost to produce + DACs Useful Life Finite amortized
Research Phase all costs are expensed Idefinite no amortization
Development Phase GR: all costs are expensed Method Generally, Straight Line Method
XPN: Capitalized as IA
development costs incurred Impairment IA with Finite Life tested for impairment when there is indicator
after commercial production
IA with Indefinite Life tested for impairment annually and
NOTE: whenever there is indicator
a. if development cannot be
distinguished from research phase treated as incurred in Research Phase
b. acquired R&D in process capitalized as Intagible Asset
Treatment of Subsequent Expenditures
c. Use of PPE and IA in R&D Phase
with alternative use expensed upon consumption GR: Expensed Outright
without alternative use expensed outright XPN: Capitalized probable and measurable
d. Internally generated Brand,
Mastheads, Publishing Titles, most subsequent costs only maintain the Intangible
Goodwill and Customer Lists expensed outright, not IA Asset rather than increasing its life, hence expensed.
Example: Litigation Cost (successful or not)
INTANGIBLE ASSETS MAJOR CATEGORIES (US GAAP)
Property of @ARdalmatian (NOT FOR SALE)
IA? Cost
Marketing Related Trademark purchased separately Yes Purchase Cost + DACs Trademark Legal Life is 10 years but it is
internally generated Yes Production Cost + DACs + Filing Cost renewable, hence its life is considered
Mastheads purchased separately Yes Purchase Cost + DACs Indefinite and not subject to amortization.
internally generated No
Website Dev Cost for internal use Yes Production Cost + DACs
for external use
customers can place order Yes Production Cost + DACs
customers can’t place order No
Customer List purchased separately Yes Purchase Cost + DACs
Customer Related
internally generated No Although Copy Right has legal life of Lifetime + 50 years, it is
Artistic Related Copyright Yes Production Cost + DACs + Filing Cost amortized over its useful life. If useful life is undeterminable,
it is expensed against revenue of first printing.
Contract Related & Franchise Yes Initial Franchise Fee + DACs note: legal life = useful life
& Leasehold Right Yes Acquisition Cost + DACs
Patent purchased separately Yes Purchase Cost + DACs patent has a legal life of 20 years, it is amortized
Technology Related internally generated Yes Licensing Cost + DACs over legal life or useful life whichever is shorter
Computer Software generally Yes Production Cost + DACs
integral part of computer No (PPE) (after technical feasibility) Rules on Acquisition/Generation of Related Patent
for sale No (Inv) If New Patent Extends Life of Old Patent
• the related patent together with the old patent should be
amortized over the extended life.
Others Goodwill GR: Not Intangible Asset - it is unidentifiable
If New Patent does not Extend Life of Old Patent
XPN: Acquired thru Business Combination • New patent should be amortized over its own life and old
patent on its remaining life
Cost Residual Approach Goodwill = Purchase Price - FV of Net Assets
Direct Approach Cost of Goodwill Average Earnings xx
a. Purchase of excess earnings Excess Earnings x No. of years Normal Earnings (xx)
b. Capitalization of excess earnings Excess Earnings/Capitalization Rate Excess Earnings xx
c. PV of excess earnings Excess Earnings x PVOA
d. Capitalization of average earnings (Ave. Earnings/Cap. Rate) - FV of Net Assets