INTRODUCTION
As per IAS 38, the Intangible assets are the non-monetary assets which are identified as a separate asset and are without physical substance. The Intangible asset which qualifies with the relevant recognition criteria is measured initially at cost and then subsequently using the revaluation model or at cost. These are then amortized systematically over their lives except when the asset has an infinite life in that scenario the asset is not amortized. An asset is any resource which is under the control of the entity which has resulted from any past events or any future economic benefits. The criteria for recognition of the intangible assets include that it is identifiable and is controllable which means that the entity controlling it has the power to gain benefits from the asset and offers some future economic benefits.
THE IDENTITY OF INTANGIBLE ASSET
The identity of the asset means when the asset is separable. It means that the asset is capable of being sold, licensed, transferred, exchanged, rented, or given through contract. Other than this, it is also identified if it arises from legal rights or contractual rights. The intangible assets can be acquired through part of a business combination, via separate purchase, via any government grant, through the exchange of assets or by internal generation.
RECOGNITION
The recognition of the intangible assets is done by confirming if the two requirements are fulfilled. These two requirements are that the asset is probable of providing future economic benefits to the entity that it is accountable to, and the cost of the asset is to be consistently measured as well. This requirement is applied to the fact that whether the intangible asset is generated internally or is acquired externally. It also needs the additional recognition criteria for the intangible assets which are internally generated.
The likelihood of potential economic benefits should also be dependent on a supportable and reasonable supposition which will be present over the useful life of the asset. The criterion of likelihood acknowledgment is considered to be approved for the intangible assets which are obtained individually or through a business combination. If the criterion is not met for recognition of the intangible assets and with the definition of the intangible assets, then as per IAS 38, the expenses on this item need to be documented as an expense when earned.
In the case of business combinations, it has been presumed that the fair value and consequently the cost of the intangible assets acquired through a business combination are more reliable. The expenditure of the intangible asset which is included in the cost of the acquisition in the case does not convene the recognition criteria and the definition of the intangible asset and then it should be formed an element of the amount which is allocated to the goodwill as recognized on the date of attainment.
EXAMPLES
The examples of intangible asset include the assets of computer software, patented technology, databases, trademarks, trade secrets, trade dress, internet domains, newspaper mastheads, audiovisual material, customer lists, video material, mortgage servicing rights, import quotas, royalty, licensing, standstill agreements, customer relationships, franchise agreements, supplier agreements, and marketing rights (Deloitte).
The cost of upholding or improving the business or goodwill of a company is often easy to determine as compared to the cost of generating the intangible asset. It is the reason the customer lists, mastheads, internally generated brands, and publishing titles are not documented as intangible assets. The internally generated other intangible assets are recognized by their nature of arising in the research or development phase. The assets which fulfil development expenditure are to be documented as the cost of the intangible assets and the ones arising from the research phase are to be recognized as an expense.
COST MODEL
The intangible assets are initially calculated at cost. The entity after the early identification usually measures the intangible asset at its cost minus the gathered amortization. The entity can decide to calculate the asset on its fair value when it can be calculated by its position in the active market.
The intangible asset which has limited life is amortized as well as it is also liable to the impairment test. The disposition of the intangible asset results in the loss or gain at the disposal, which is to be included in the loss or profit. The intangible asset with an infinite life is, on the contrary, not amortized; however, it is tested for the impairment on a yearly basis (IFRS.Org).
GOOD WILL
Goodwill is the intangible asset which arises from one company which is purchased by another company for premium value. The company brand has value for its solid customer base, good relations with suppliers and employees, its patents, and its technology, which is represented in its goodwill. Goodwill is an intangible asset because of the non-existence of its physical substance.
REVALUATION MODEL
The items which should be charged to expense when incurred include the internally generated goodwill, the pre-opening costs, advertising costs, relocation costs and training costs. The measurement of the intangible assets after the acquisition of an entity is done through cost or revaluation model. The entity has to choose between either model for its group of intangible assets. The cost model applies that the intangible assets after preliminary recognition should be passed on its cost minus its collective amortized value and less its impairment losses. As per the revaluation firm, the intangible assets can be passed based on the fair value at the revalued amount less the impairment losses and the amortization only if the fair value of the asset can be calculated through position in the active market. However, these active markets are not likely to be widespread for the intangible assets. As per the revaluation model, the revalued value increases in the comprehensive income and is combined with the revaluation excess in the equity. It is other than the fact that these reverse the revaluation decline which was lastly recognized in the profit and loss. In case the revalued intangible asset has a finite life as well then, the revalued amount is amortized as well. As per the revaluation model, the kind of intangible assets which fit the revaluation model includes the computer software, the licenses, whereas the brand name, patents, copyrights, and customer lists are not fitted in the revaluation model (Ernst & Young).
DISCLOSURE REQUIRED
Each of the intangible assets is needed to reveal the life of the asset and the amortization rate, the way of amortization, the impairment losses, the carrying amount, and the settlement of the carrying amounts at the end and at the beginning of the period and the line items in which is the amortization is included. Other than this, the basis of the determination of the indefinite life of the intangible asset, the carrying amount and description of the intangible assets, any specific disclosures, and any contractual commitments to acquire any intangible assets are to be disclosed as well. Moreover, additional disclosures are needed for the revalued intangible assets and also for the amount of the research as well as development expenditure which is identified as the expense.
IAS 38
IAS 38 is the standard which is related to the treatment of the intangible assets in accounting terms which is not covered by the other accounting standards. The guidance of the main issues of the measurement and recognition of the intangible assets also including the disclosure requirements is provided through this standard (FRAS CANADA).
The internally generated intangible assets are when developed are recognized as assets and when it is starting to use then the capitalized costs are amortized. For the impairment tests, the amortizable assets, the impairment tests are applied only when the indication is clear that assets can be impaired. It is done when the market value of the asset is dropped, or due to technical obsolescence, or in the case when the interest rates rise. The non-amortizable assets impairment tests are required to be implemented on an annual basis. The impairment loss occurs when the net realizable value of the asset is lower than its book value. If there is a situation in which the loss is recovered, then the impairment loss can be reversed as well as revenue, but this is not applicable to goodwill (Lumen Learning).
CONCLUSION
In the end, it is concluded that for the determination and accounting of the impairment, the loss process needs to be followed. Firstly, it is to be identified if there are any indicators of impairment. If not, then it is to be identified that the asset if goodwill or any asset with infinite useful life. If no, then no impairment losses are to be incurred. In case the answer is yes for any of the mentioned cases, then it is to be identified if RA of the asset can be estimated. If yes, then it is to be determined, and if no is the answer, then CGU is to be identified for the asset. Through amortization, the assets in the balance sheet are reduced directly by expensing the intangible assets whereas through the depreciation, the assets are reduced indirectly by the expensing of the tangible assets through the accumulated depreciation account.
Work Cited
Deloitte.” IAS 38 — Intangible Assets.” Deloitte. Deloitte 2018. 24 Web. July 2018. https://www.iasplus.com/en/standards/ias/ias38.
Ernst & Young. “Impairment Accounting- the basics of IAS 36 Impairment of Assets.” Ernst & Young. Ernst & Young, 2008. Web. 24 July 2018. https://www.ey.com/Publication/vwLUAssets/Impairment_accounting_the_basics_of_IAS_36_Impairment_of_Assets/$FILE/Impairment_accounting_IAS_36.pdf.
FRAS CANADA. “International Accounting Standard 38: Intangible Assets.” FRAS CANADA. FRAS CANADA, 2018. Web. 24 July 2018. http://www.frascanada.ca/international-financial-reporting-standards/resources/unaccompanied-ifrss/item45645.pdf.
IFRS.Org. “IAS 38 Intangible Assets.” IFRS.Org. IFRS.Org, 2018. Web. 24 July 2018. https://www.ifrs.org/issued-standards/list-of-standards/ias-38-intangible-assets/.
Lumen Learning. “Intangible Asset Impairment.” Lumen Learning. Lumen Learning, 2018. Web. 24 July 2018. https://courses.lumenlearning.com/boundless-accounting/chapter/intangible-asset-impairment/.
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