IAS 38
IAS 38 Intangible Assets
IRFS 3 Goodwill
Mr. Barry
A-level Accounting Year 13
IAS 38 Definition
• Intangible ASSETS are defined by IAS
38 as non-monetary assets without
physical substance. They must be:
– Identifiable
– Controlled as a result of a past event
– Able to provide future economic
benefits
Mr. Barry
A-level Accounting Year 13
Internally generated goodwill
• MAY NOT BE RECOGNISED AS AN
ASSET – as cannot be measured
reliably.
Mr. Barry
A-level Accounting Year 13
Research & Development Costs
• Research – does not meet the criteria for
recognition under IS 38, they should be written
off as an expense as incurred.
• Development- may qualify provided that strict
criteria is met :
(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
Mr. Barry
A-level Accounting Year 13
(d) How the intangible asset will generate
future economic benefits. Entity should
demonstrate the existence of a market for
the output
(e) The ability to measure the expenditure
attributable to the intangible asset during
its development reliably.
Mr. Barry
A-level Accounting Year 13
Revaluations
• Revalued upwards to a FV = revaluation
surplus.
• if a revaluation surplus is a reversal of a
revaluation decrease =- recognised as
income.
• downward revaluation =expense against
income, unless the asset has previously
been revalued upwards. A revaluation
decrease should be first charged against
any previous revaluation surplus in respect
of that asset.
Mr. Barry
A-level Accounting Year 13
Amortisation period & method
An intangible asset with a finite useful life should be
amortised over its expected useful life:
(a) start when the asset is available for use
(b) Should cease at the earlier of the date the asset was
classified as held for sale in accordance with IFRS 5
and the date that the asset is derecognised.
(c) Method should reflect the pattern of consumption or
use S/L.
(d) charge = profit or loss account
Mr. Barry
A-level Accounting Year 13
Disposals / retirements of intangible
assets
• Should be eliminated from the Balance
sheet
• gain or loss = treated as income or
expense
Mr. Barry
A-level Accounting Year 13
Summary
• Intangible asset recognised if, and only if, it is
probable that future economic benefits will flow to
the entity and the cost can be measured reliably.
• An asset is initially recognised at cost and
subsequently carried at either cost or revalued
amount.
• Costs that do not meet the recognition criteria
should be expenses in the period
• Intangibles with a finite useful life should be
amortised over its useful life.
• Intangible with indefinite useful live should not be
amortised.
Mr. Barry
A-level Accounting Year 13
IFRS 3 Goodwill
Goodwill and Fair Values
Mr. Barry
A-level Accounting Year 13
What is Goodwill?
• Created by good relationships between a
business & customers:
– Building a reputation
– Responding promptly and helpfully
– Personality of staff
Mr. Barry
A-level Accounting Year 13
Issue
• cost of business combination < the net
assets acquired
• Difference is called GOODWILL and is
measured under IFRS 3 as:
Mr. Barry
A-level Accounting Year 13
Accounting Treatment
Goodwill
Purchased (IFRS 3)
Positive
Capitalise and
test annually
for impairment
Mr. Barry
Internally Generated (IAS 38)
Ignore
Negative
Reassess and
then credit any
remainder to IS
A-level Accounting Year 13
Impairment Testing
• Impairment tests are conducted in
accordance with IAS 36 Impairment of
Assets
• Recognise in income statement in the
year in which the impairment arises.
• Normal accounting entry –
– Debit Income Statement
– Credit
Asset
• With the impairment loss
Mr. Barry
A-level Accounting Year 13