Ifrs Impairment of Assets
Intangibles and Impairment of Assets
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Intangibles
• Identifiable non-monetary asset without physical substance
• IAS 38 prescribes special criteria for an asset to be recognized as intangible asset • Tangible or intangible must meet the criteria of asset to be recognized
– Controlled by entity as a result of past event – Probable future economic inflow (revenue or cost saving)
Recognition
• Must meet the definition of asset
• Must meet criteria set by IAS 38
– Cost of asset reliably measured – Probable economic inflow
Recognized at cost!!
Recognition – Internally generated
• The standard states that expenditure on internally generated brands, mastheads, publishing titles, customer lists and items similar in substance are not recognized as intangible assets (because they cannot be distinguished from the cost of developing the business as a whole).
• Similarly, start-up, training, advertising, promotional, relocation and reorganisation costs are all recognised as expenses.
Purchased Intangibles
• If value of an intangible can not be valued reliably, while purchasing a company, include the value as a part of goodwill
A special note on goodwill
• Inherent goodwill Vs Purchased goodwill
• How is it different?
– Balancing figure – Cant be sold as a separate asset
Research and Development
• Research
– Initial investigation done to acquire new scientific knowledge or understanding
• Development
– Application of research findings to design a new product or improve an existing system of product before production
R&D treatment
• Write-off Research expenses
• Development expenses - Capitalize if following conditions met
– Technical feasibility – Intention and ability to make, use or sell – Economic feasibility – market for the product/usefulness – Expenditures attributable to development reliably measured
Initial recognition
Eg. development expenditure
The PIRATE criteria -
Learn | Consult | Research
Intangibles
• Identifiable non-monetary asset without physical substance
• IAS 38 prescribes special criteria for an asset to be recognized as intangible asset • Tangible or intangible must meet the criteria of asset to be recognized
– Controlled by entity as a result of past event – Probable future economic inflow (revenue or cost saving)
Recognition
• Must meet the definition of asset
• Must meet criteria set by IAS 38
– Cost of asset reliably measured – Probable economic inflow
Recognized at cost!!
Recognition – Internally generated
• The standard states that expenditure on internally generated brands, mastheads, publishing titles, customer lists and items similar in substance are not recognized as intangible assets (because they cannot be distinguished from the cost of developing the business as a whole).
• Similarly, start-up, training, advertising, promotional, relocation and reorganisation costs are all recognised as expenses.
Purchased Intangibles
• If value of an intangible can not be valued reliably, while purchasing a company, include the value as a part of goodwill
A special note on goodwill
• Inherent goodwill Vs Purchased goodwill
• How is it different?
– Balancing figure – Cant be sold as a separate asset
Research and Development
• Research
– Initial investigation done to acquire new scientific knowledge or understanding
• Development
– Application of research findings to design a new product or improve an existing system of product before production
R&D treatment
• Write-off Research expenses
• Development expenses - Capitalize if following conditions met
– Technical feasibility – Intention and ability to make, use or sell – Economic feasibility – market for the product/usefulness – Expenditures attributable to development reliably measured
Initial recognition
Eg. development expenditure
The PIRATE criteria -