Applicable to both the fair value model and the cost model

Chapter 12 - Intangibles Page 150 cannot be identified separately from the cost of developing the business as a whole. Instead such items are seen as being component parts of internally generated goodwill, the recognition of which is prohibited. [IAS 38.63]

6.3 The cost of internally generated intangible assets

If an internally generated intangible asset is recognised, it should be measured at its cost. This is the directly attributable cost necessary to create, produce, and prepare the asset for its intended use. Such costs include, among other things:  materials and services consumed;  employment costs of those directly engaged in generating the asset; and  legal, patent or licence registration fees. It is important to note that it is only expenditure incurred after the project has entered its development phase that can be included as part of the cost. It is not possible at the time of recognition to go back to recognise as an asset expenditure incurred during the research phase which has already been recognised as an expense in profit or loss. Illustration 2 An entity is developing a new pharmaceutical ingredient. In the previous year the entity recognised CU1,000 as an expense. During the current year expenditure incurred was CU1,200. Of this CU800 was incurred before the entity was able to demonstrate that the pharmaceutical ingredient met the criteria for recognition as an intangible asset. The pharmaceutical ingredient is recognised as an intangible asset at a cost of CU400, being the expenditure incurred since the recognition criteria were met. The CU1,800 incurred before this should not form part of the cost of the intangible asset recognised in the statement of financial position.

6.4 Web site development costs

A web site has the characteristics of both tangible and intangible assets. An interpretation was issued SIC 32 – Intangible assets – web site costs to provide guidance on how such costs should be treated to ensure that they are treated in a consistent manner. SIC 32 is consistent with IAS 38 but provides the link between the standard and the specific characteristics of the development of a web site. SIC 32 makes it explicit that a web site that has been developed for the purposes of promoting and advertising an entity’s products and services does not meet the requirement in IAS 38 to generate probable future benefits, and therefore costs incurred in its development should be expensed as incurred.

6.5 Emission rights

IFRIC 3 Emission rights was published in December 2004 to provide guidance to entities that participate in government schemes aimed at reducing greenhouse gas emissions. Several national governments have issued such schemes to encourage the reduction in greenhouse gas emissions following the ratification of the Kyoto Agreement which aims to reduce air pollution. In summary, the Interpretation sets out that any rights under such schemes should be treated as intangible assets in accordance with IAS 38. If allowances are issued by a government body for less than their fair value, this difference will be recognised as a government grant,