Nature of investment properties Scope
Chapter 12 INTANGIBLES
1 Business Context Brand names such as Coca-Cola and Microsoft are in many cases an entity’s most valuable asset, but they are extremely difficult to value when they have been generated internally and over a period of time. Brands are one example of an intangible asset. Internally generated brands that cannot be measured reliably are not recognised in the statement of financial position because of the difficulties that surround their valuation. However, an entity that has acquired, as opposed to internally generated, an equally valuable brand will recognise it, since a fair value can be attributed to it. As the acquirer has paid a price to acquire this brand, that price provides a reliable measurement. This inconsistent treatment has in the past led to some companies writing off acquired brands i.e. removing the asset from the statement of financial position and recognising this amount in profit or loss. 2 Chapter Objectives This chapter deals with IAS 38 Intangible assets, which sets out the reporting requirements relating to intangible assets. On completion of this chapter you should be able to: demonstrate a knowledge of the objectives and scope of IAS 38; demonstrate a knowledge of the important terminology and definitions which relate to intangible assets; demonstrate an understanding of how to identify, measure, disclose and account for the disposal of intangible assets; and apply IAS 38 knowledge and understanding in particular circumstances through basic calculations. 3 Objectives, Scope and Definitions of IAS 38 An intangible asset is defined as an identifiable non-monetary asset that does not have physical substance. Non-monetary assets are those which are not ‘monetary assets’ monetary assets are defined as items whose value is fixed in money terms, for example, a receivable or cash. [IAS 38.8] The objective of IAS 38 is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in other standards. It requires an entity to recognise an intangible asset if certain criteria are met. It also specifies how to measure the carrying amount of intangible assets and the nature of the disclosures required. Examples of assets outside the scope of IAS 38 include: [IAS 38.2] goodwill which is accounted for under IFRS 3 Business combinations; financial assets as defined in IAS 32 Financial instruments: Presentation; and Chapter 12 - Intangibles Page 146 exploration and evaluation assets which are accounted for under IFRS 6 Exploration for and evaluation of mineral resources. One of the principal distinctions between property, plant and equipment and intangible assets is that while the former have physical substance, the latter do not. The distinction can sometimes be blurred where, for example, an item itself does not have physical substance but is held in or on something that does. Examples of this are computer software held on compact disc, a licence or patent written into a legal document, or a film held on tape. In such cases judgement will be needed to assess whether the item should be accounted for in accordance with IAS 16 Property, plant and equipment or IAS 38. If software forms an integral part of the related hardware, then it will be accounted for as part of the hardware under IAS 16; if, however, it is a piece of independent software, then it should be accounted for under IAS 38. IAS 38 specifically applies to expenditure incurred on activities such as advertising, training, start-up activities, and research and development. The standard also applies to rights under licensing agreements for items such as motion pictures, video recordings, plays, manuscripts, patents and copyrights. An intangible asset should be initially measured at cost. [IAS 38.24] 4 The Definition of Intangible Assets4.1 Identifiability
The definition of an intangible asset, as set out above, includes the requirement for the asset to be identifiable. The reason for this requirement is to distinguish it from goodwill, which arises on the acquisition of a subsidiary. Goodwill is not identifiable itself since it represents future economic benefits arising from assets not capable of individual identification and separate recognition. For an intangible asset to be determined as identifiable it should either be: [IAS 38.12] separable; or arise from contractual or other legal rights. An asset is separable if it can be sold, licensed, or rented to another party on its own, rather than as part of the business. Rights to films, airport landing slots, fishing or milk quotas, taxi licences, patents, copyrights and trademarks are all examples of separable assets and therefore fall within the definition of intangibles. A trading licence which is not transferable to another entity is not separable, but it still is an intangible asset because it arises from legal rights.4.2 Control
One of the characteristics of an asset is that it is under the control of the entity. Control results in the entity being able to obtain the future economic benefits generated by using an asset and to restrict other parties from obtaining them. This would normally arise where there are legal rights enforceable in a court of law, for example trademarks, copyrights and patents. The existence of legal rights is not, however, an essential element in determining control, although control is more difficult to identify without their presence. Staff is a common example of an asset that is not controlled by the entity and does not therefore meet the definition of an intangible asset. Although the entity expects that staff skillsParts
» The International Accounting Standards Committee IASC
» The International Organisation of Securities Commissions IOSCO
» The Financial Accounting Standards Board FASB
» The Committee of European Securities Regulators CESR
» The IASB FINANCIAL REPORTING CONTEXT
» The Standards Advisory Council SAC
» The International Financial Reporting Interpretations Committee IFRIC
» The standard-setting process THE IFRS FRAMEWORK
» Preface to International Financial Reporting Standards
» Definition THE IFRS FRAMEWORK
» Financial statements THE IFRS FRAMEWORK
» Economic decisions Users and their information needs
» Accountability of management THE IFRS FRAMEWORK
» Financial position, performance and changes in financial position
» Underlying assumptions THE IFRS FRAMEWORK
» Understandability Qualitative characteristics of financial statements
» Relevance Qualitative characteristics of financial statements
» Reliability Qualitative characteristics of financial statements
» Definitions of elements Elements of financial statements
» Recognition of elements in financial statements Measurement in financial statements
» The statement of financial position
» The statement of comprehensive income
» Currentnon-current distinction PRESENTATION OF FINANCIAL STATEMENTS
» Notes PRESENTATION OF FINANCIAL STATEMENTS
» Fair presentation and compliance with IFRS
» Comparative information Other considerations
» Additional disclosures Other considerations
» ACCOUNTING POLICIES IFRSs) Learning Materials
» Servicing fees included in the price of the product
» Cost of inventories INVENTORIES
» Cost formulae Net realisable value NRV
» Initial recognition and elements of cost
» Self-constructed assets PROPERTY, PLANT AND EQUIPMENT
» Ceasing recognition of costs
» Subsequent expenditure PROPERTY, PLANT AND EQUIPMENT
» Depreciation and revalued assets
» Which costs should be capitalised?
» When should capitalisation of borrowing costs commence?
» Suspension of capitalisation BORROWING COSTS
» Ceasing capitalisation BORROWING COSTS
» Non-monetary government grants GOVERNMENT GRANTS
» Repayment of government grants
» No specific relation to operating activities
» Proposed revision of standard
» Changes of plan NON-CURRENT ASSETS HELD FOR SALE
» Nature of investment properties Scope
» Initial recognition INVESTMENT PROPERTY
» Measurement after recognition INVESTMENT PROPERTY
» Applicable to both the fair value model and the cost model
» The cost model INVESTMENT PROPERTY
» Separately acquired intangible assets
» Exchanges of assets INTANGIBLES
» Intangible assets acquired as part of a business combination
» The research phase INTANGIBLES
» The development phase INTANGIBLES
» The cost of internally generated intangible assets
» Stage 1 – Indicators of impairment
» Stage 2 – Measuring recoverable amount
» Stage 3 – Recognising an impairment loss
» Future operating losses Provisions
» Contingent liabilities and contingent assets
» Best estimate PROVISIONS AND CONTINGENCIES
» Present value PROVISIONS AND CONTINGENCIES
» Other measurement points PROVISIONS AND CONTINGENCIES
» Reimbursements PROVISIONS AND CONTINGENCIES
» Decommissioning, restoration and environmental funds
» Waste management costs PROVISIONS AND CONTINGENCIES
» Carrying amount versus tax base Calculate the temporary difference
» Determining deferred tax TAXATION
» Revaluations Recognition criteria: further issues
» The expected manner of recovery of an asset
» Annual review Recognition criteria: further issues
» Discounting Recognition criteria: further issues
» Temporary differences and investments
» Other related disclosures TAXATION
» Risks and rewards Situations indicating the existence of a finance lease
» Initial recognition Finance lease recognition
» Depreciation Finance charge Finance lease recognition
» Actuarial method Methods of allocating finance charges
» Disclosures for finance leases
» Operating lease incentives Accounting treatment of operating leases
» Disclosures for operating leases
» Disclosure by a lessor for finance lease arrangements
» Disclosure by a lessor for operating lease arrangements
» Operating lease incentives Operating leases
» An overview All short-term benefits
» Short-term compensated absences Profit-sharing and bonus plans
» Recognition and measurement Disclosure
» The discount rate Movements during the period
» Variations in actuarial assumptions
» Past service costs Sundry considerations
» Curtailments and settlements Sundry considerations
» Minimum funding requirements and the limit on a defined benefit asset
» Disclosure and presentation of defined benefit plans
» Share-based payment transactions – cash-settled or equity-settled
» Group and treasury share transactions
» Objectives, scope and definitions of IFRS 2 Disclosure requirements
» EVENTS AFTER THE REPORTING PERIOD
» The functional currency FOREIGN EXCHANGE
» The presentation currency FOREIGN EXCHANGE
» Monetary and non-monetary items
» Summary of the approach of IAS 21
» Initial recognition FOREIGN EXCHANGE
» Reporting at the ends of subsequent reporting periods
» Transactions settled within the period
» Transaction balance is outstanding at the end of the reporting period
» Net Investment in a Foreign Operation
» Change in Functional Currency
» Translation of a foreign operation
» Disposal of a foreign operation
» Settlement options FOREIGN EXCHANGE
» Compound financial instruments FOREIGN EXCHANGE
» Financial assetliability at fair value through profit or loss
» Held-to-maturity investments Loans and receivables
» Available-for-sale financial assets Financial assets
» IFRIC 2 Members’ shares in co-operative entities and similar instruments
» Derecognition in its entirety Continuing involvement after a transfer
» Financial liabilities FOREIGN EXCHANGE
» Qualifying for hedge accounting
» Fair value hedge Cash flow hedge
» Hedge of a net investment in a foreign operation
» Objectives and Scope of IFRS 7
» Fair value Other disclosures
» Statement of comprehensive income Nature and extent of risks
» Objective and scope What is cash?
» The direct method FOREIGN EXCHANGE
» Indirect method FOREIGN EXCHANGE
» Non-cash transactions FOREIGN EXCHANGE
» Additional disclosures FOREIGN EXCHANGE
» Identifying segments FOREIGN EXCHANGE
» Reportable segments FOREIGN EXCHANGE
» Reporting formats FOREIGN EXCHANGE
» Discontinued operations Disclosure Prior periods
» Contents Form FOREIGN EXCHANGE
» Selected explanatory notes FOREIGN EXCHANGE
» Impairment in the interim period
» Calculating earnings FOREIGN EXCHANGE
» Calculating the weighted average number of ordinary shares
» Calculation of earnings Calculation of the weighted average number of shares
» Related parties FOREIGN EXCHANGE
» Contract revenue FOREIGN EXCHANGE
» Contract costs FOREIGN EXCHANGE
» Stage of completion FOREIGN EXCHANGE
» Reliable measurement FOREIGN EXCHANGE
» Loss making contracts FOREIGN EXCHANGE
» Key Concepts FOREIGN EXCHANGE
» Valuation of assets Disclosure
» What is an insurance contract?
» Scope of consolidated financial statements
» Special purpose entities FOREIGN EXCHANGE
» Basic approach FOREIGN EXCHANGE
» Reporting dates and consistent accounting policies
» The statement of financial position The statement of comprehensive income
» Gain or loss on net monetary position
» Introduction Statement of cash flows
» Initial application of IAS 29
» Identifying a business combination
» Acquisition method of accounting
» General principle FOREIGN EXCHANGE
» Specific issues FOREIGN EXCHANGE
» A business combination achieved in stages
» Subsequent accounting for contingent consideration
» Classifying and measuring the identifiable net assets acquired
» Initial recognition and subsequent adjustments
» Subsequent measurement FOREIGN EXCHANGE
» Recognition and measurement of goodwill
» Gain on bargain purchase Adjustments to provisional values
» Impairment losses FOREIGN EXCHANGE
» Jointly controlled operations FOREIGN EXCHANGE
» Proportionate consolidation Equity method
» Jointly controlled assets Investors separate financial statements
» Transactions between a venturer and a joint venture
» Operators of joint ventures Investors of a joint venture
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