IAS 38 Intangible Assets

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  • Piron Education, a subsidiary of Piron Corporation, is among the world's leading education technology companies. Leveraging cutting edge technology to provide web-based training and mobile learning, ...

The objective of this Standard is to prescribe the accounting treatment for intangible assets that are not dealt

with specifically in another Standard. This Standard requires an entity to recognise an intangible asset if, and

only if, specified criteria are met. The Standard also specifies how to measure the carrying amount of

intangible assets and requires specified disclosures about intangible assets.

An intangible asset is an identifiable non-monetary asset without physical substance.

Recognition and measurement

The recognition of an item as an intangible asset requires an entity to demonstrate that the item meets:

(a) the definition of an intangible asset; and

(b) the recognition criteria.

This requirement applies to costs incurred initially to acquire or internally generate an intangible asset and

those incurred subsequently to add to, replace part of, or service it.

An asset is identifiable if it either:

(a) is separable, ie is capable of being separated or divided from the entity and sold, transferred, licensed,

rented or exchanged, either individually or together with a related contract, identifiable asset or liability,

regardless of whether the entity intends to do so; or

(b) arises from contractual or other legal rights, regardless of whether those rights are transferable or separable

from the entity or from other rights and obligations.

An intangible asset shall be recognised if, and only if:

(a) it is probable that the expected future economic benefits that are attributable to the asset will flow to the

entity; and

(b) the cost of the asset can be measured reliably. The probability recognition criterion is always considered to be satisfied for intangible assets that are acquired

separately or in a business combination.

An intangible asset shall be measured initially at cost.

The cost of a separately acquired intangible asset comprises:

(a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade

discounts and rebates; and

(b) any directly attributable cost of preparing the asset for its intended use.

In accordance with IFRS 3 Business Combinations, if an intangible asset is acquired in a business combination,

the cost of that intangible asset is its fair value at the acquisition date. If an asset acquired in a business

combination is separable or arises from contractual or other legal rights, sufficient information exists to

measure reliably the fair value of the asset.

In accordance with this Standard and IFRS 3 (as revised in 2008), an acquirer recognises at the acquisition

date, separately from goodwill, an intangible asset of the acquiree, irrespective of whether the asset had been

recognised by the acquiree before the business combination. This means that the acquirer recognises as an

asset separately from goodwill an in-process research and development project of the acquiree if the project

meets the definition of an intangible asset.

Internally generated intangible assets

Internally generated goodwill shall not be recognised as an asset.

No intangible asset arising from research (or from the research phase of an internal project) shall be

recognised. Expenditure on research (or on the research phase of an internal project) shall be recognised as an

expense when it is incurred.

An intangible asset arising from development (or from the development phase of an internal project) shall be

recognised if, and only if, an entity can demonstrate all of the following:

(a) the technical feasibility of completing the intangible asset so that it will be available for use or sale.

(b) its intention to complete the intangible asset and use or sell it.

(c) its ability to use or sell the intangible asset.

(d) how the intangible asset will generate probable future economic benefits. Among other things, the entity

can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself

or, if it is to be used internally, the usefulness of the intangible asset.

(e) the availability of adequate technical, financial and other resources to complete the development and to use

or sell the intangible asset.

(f) its ability to measure reliably the expenditure attributable to the intangible asset during its development.

Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall not

be recognised as intangible assets. The cost of an internally generated intangible asset for the purpose of paragraph 24 is the sum of expenditure

incurred from the date when the intangible asset first meets the recognition criteria in paragraphs 21, 22 and

57. Paragraph 71 prohibits reinstatement of expenditure previously recognised as an expense.

Expenditure on an intangible item shall be recognised as an expense when it is incurred unless:

(a) it forms part of the cost of an intangible asset that meets the recognition criteria; or

(b) the item is acquired in a business combination and cannot be recognised as an intangible asset. If this is the

case, it forms part of the amount recognised as goodwill at the acquisition date (see IFRS 3).

Measurement after recognition

An entity shall choose either the cost model or the revaluation model as its accounting policy. If an intangible

asset is accounted for using the revaluation model, all the other assets in its class shall also be accounted for

using the same model, unless there is no active market for those assets.

Cost model: After initial recognition, an intangible asset shall be carried at its cost less any accumulated

amortisation and any accumulated impairment losses.

Revaluation model: After initial recognition, an intangible asset shall be carried at a revalued amount, being its

fair value at the date of the revaluation less any subsequent accumulated amortisation and any subsequent

accumulated impairment losses. For the purpose of revaluations under this Standard, fair value shall be

measured by reference to an active market. Revaluations shall be made with such regularity that at the end of

the reporting period the carrying amount of the asset does not differ materially from its fair value.

An active market is a market in which all the following conditions exist:

(a) the items traded in the market are homogeneous;

(b) willing buyers and sellers can normally be found at any time; and

(c) prices are available to the public.

If an intangible asset’s carrying amount is increased as a result of a revaluation, the increase shall be

recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus.

However, the increase shall be recognised in profit or loss to the extent that it reverses a revaluation decrease

of the same asset previously recognised in profit or loss. If an intangible asset’s carrying amount is decreased

as a result of a revaluation, the decrease shall be recognised in profit or loss. However, the decrease shall be

recognised in other comprehensive income to the extent of any credit balance in the revaluation surplus in

respect of that asset.

Useful life

Useful life is:

(a) the period over which an asset is expected to be available for use by an entity; or

(b) the number of production or similar units expected to be obtained from the asset by an entity. An entity shall assess whether the useful life of an intangible asset is finite or indefinite and, if finite, the length

of, or number of production or similar units constituting, that useful life. An intangible asset shall be regarded

by the entity as having an indefinite useful life when, based on an analysis of all of the relevant factors, there is

no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.

The useful life of an intangible asset that arises from contractual or other legal rights shall not exceed the

period of the contractual or other legal rights, but may be shorter depending on the period over which the entity

expects to use the asset. If the contractual or other legal rights are conveyed for a limited term that can be

renewed, the useful life of the intangible asset shall include the renewal period(s) only if there is evidence to

support renewal by the entity without significant cost.

To determine whether an intangible asset is impaired, an entity applies IAS 36 Impairment of Assets.

Intangible assets with finite useful lives

The depreciable amount of an intangible asset with a finite useful life shall be allocated on a systematic basis

over its useful life. Depreciable amount is the cost of an asset, or other amount substituted for cost, less its

residual value. Amortisation shall begin when the asset is available for use, ie when it is in the location and

condition necessary for it to be capable of operating in the manner intended by management. Amortisation

shall cease at the earlier of the date that the asset is classified as held for sale (or included in a disposal group

that is classified as held for sale) in accordance with IFRS 5 Non-current Assets Held for Sale and

Discontinued Operations and the date that the asset is derecognised. The amortisation method used shall

reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity.

If that pattern cannot be determined reliably, the straight-line method shall be used. The amortisation charge

for each period shall be recognised in profit or loss unless this or another Standard permits or requires it to be

included in the carrying amount of another asset.

The residual value of an intangible asset is the estimated amount that an entity would currently obtain from

disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in

the condition expected at the end of its useful life. The residual value of an intangible asset with a finite useful

life shall be assumed to be zero unless:

(a) there is a commitment by a third party to purchase the asset at the end of its useful life; or

(b) there is an active market for the asset and:

(i) residual value can be determined by reference to that market; and

(ii) it is probable that such a market will exist at the end of the asset’s useful life.

The amortisation period and the amortisation method for an intangible asset with a finite useful life shall be

reviewed at least at each financial year-end. If the expected useful life of the asset is different from previous

estimates, the amortisation period shall be changed accordingly. If there has been a change in the expected

pattern of consumption of the future economic benefits embodied in the asset, the amortisation method shall be

changed to reflect the changed pattern. Such changes shall be accounted for as changes in accounting estimates

in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Intangible assets with indefinite useful lives

An intangible asset with an indefinite useful life shall not be amortised.

In accordance with IAS 36 Impairment of Assets, an entity is required to test an intangible asset with an

indefinite useful life for impairment by comparing its recoverable amount with its carrying amount

(a) annually, and

(b) whenever there is an indication that the intangible asset may be impaired.

The useful life of an intangible asset that is not being amortized shall be reviewed each period to determine

whether events and circumstances continue to support an indefinite useful life assessment for that asset. If they

do not, the change in the useful life assessment from indefinite to finite shall be accounted for as a change in an

accounting estimate in accordance with IAS 8

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