INTANGIBLE
ASSETS
GOVERNMENT ACCOUNTING
INTANGIBLE ASSETS
Are identifiable non-monetary asset without physical substance.
NATURE:
• Identifiability
* Separable
* Arises from binding arrangements
• Control
* Registered in Intellectual Property Office
• Future economic benefits or service potential
Examples:
Computer software, patents, copyrights, franchise, motion picture films,
trademarks or brand names, licenses, acquired import quotas, lists of users of a
service, and relationships with users of a service.
INITIAL MEASUREMENT
• At Cost
• The measurement of cost depends on the mode of acquisition,
similar to the rules on PPE and IP
MODES OF ACQUISITION INITIAL MEASUREMENT
BY PURCHASE CASH PRICE EQUIVALENT
(if payment is deferred)
NON-EXCHANGE TRANSACTION FAIR VALUE
EXCHANGE TRANSACTION w/commercial substance
- FV of Asset given up (plus cash paid/minus cash
received)
- FV of Asset received
- CA of Asset given up(plus cash paid/minus cash
received)
w/o commercial substance
- CA of asset given up (plus cash paid/minus cash
received)
NOTE: Peculiar measurement is made when the intangible asset is INTERNALLY GENERATED.
INTERNALLY-GENERATED INTANGIBLES
a) Research phase - expenditures are recognized as expenses.
* Activities aimed at obtaining new knowledge.
* Search for, evaluation and final selection of, applications of research
findings/other knowledge.
* Search for alternatives for materials, devices, products, processes,
systems or services
* Formulation, design, evaluation, and final selection of possible
alternatives
INTERNALLY-GENERATED INTANGIBLES
b) Development phase – phase before real commercial
production is used, All expenditures are CAPITALIZED
* Technical feasibility of completing the intangible assets
* Intention to complete the intangible assets
* Ability to use or sell the intangible asset
* Probable future economic benefit or service potential
* Availability to adequate technical, financial and other resources to
complete the development
* Reliable measurement of the cost of the intangible asset
NOTES:
• If there is doubt whether the expenditure relates to research or
development cost, it shall be a "research cost". Hence, EXPENSED.
• Costs previously charged as expenses cannot be subsequently
capitalized.
• Internally generated brands, mastheads, publishing titles,
customer lists, and similar items shall not be recognized as
intangible assets.
• Inefficiencies are expensed.
(Selling, admin, other general OH, cost of inefficiencies and initial operating cost and training cost)
SUBSEQUENT MEASUREMENT
Intangible assets are subsequently measured at:
• =COST – (ACCUMULATED AMORTIZATION + ANY ACCUMULATED
IMPAIRMENT LOSS)
LIFE OF THE CONTEX AMORTIZATION
INTANGIBLE ASSET
- no foreseeable limit to the - NOT AMORTIZED BUT TESTED FOR
period over which the asset is IMPAIRMENT ATLEAST ANNUALLY
INDEFINITE LIFE expected to generate net cash
inflows for, or provides service
potential to, the entity
- AMORTIZED using the Straight- Line Method
of amortizationover a period oof 2 to10 years.
- a limited period of benefit to NOTE:
FINITE LIFE the entity. Start- available for use
Cease- derecognized or classified as held for
sale, whichever comes earlier.
Does not cease when the asset is no longer
used., except when it is fully depreciated of
classified as held for sale.
Residual value- 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 acquire the asset at the end of
its useful life; or there is an active market where
the entity expects to sell the asset at the end of
its useful life
IMPAIRMENT
NOTE:
Indefinite Useful Life- required to test for impairment
at least annually or whenever there is an indicator of
impairment.
Definite Useful Life- only when an indication of
impairment exist.
ILLUSTRATIVE ACCOUNTING ENTRIES
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ILLUSTRATIVE ACCOUNTING ENTRIES
ILLUSTRATIVE ACCOUNTING ENTRIES
THANK
YOU!
