PAS 38- Intangible Asset Intangible asset is an identifiable nonmonetary asset without physical substance. Examples of Intangible assets; Patented technology & trade secrets ( technology related) Ownership rights to plays, literary works and etc ( artistic related) Franchise, construction permit, broadcast right (Contract related). Trademark, newspaper mastheads non competition agreements(Marketing related) Costumer lists, production backlogs (Customer Criteria of recognizing an intangible asset; Identifiable It is identifiable when; It can be separately sold, rented or exchanged. It arises from contactual or other legal rights. When the entity has control over the asset; An entity has control over the asset if the entity has the power to obtain the future benefits of the asset and restrict others from benefiting from it. When future economic benefits can be expected to flow to the entity Cost can be measureed reliably Acquisition of Intangible assets I Separate acquisition- Normally this is expected that the benefit of such asset will flow to the company. Separately acquired asset can usually be measured reliably. Measurement The cost of a separately acquired intangible asset comprises: its purchase price, including import duties and non‑refundable related). purchase taxes, after deducting trade discounts and rebates; and Any directly attributable cost of preparing the asset for its intended for use. Examples of directly attributable costs are: Costs of employee benefits arising directly from bringing the asset to its working condition; Professional fees arising directly from bringing the asset to its working Costs of testing whether the asset . II. Intangible asset acquired in business combination If an intangible 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. Note; Internally generated goodwill should not be recognized as an intangible asset. Also internally generated brands mastheads, publishing titles customer lists shall not be recognized as an intangible asset. III. Acquisition through Exchange of assets One or more intangible assets may be acquired in exchange for a non‑monetary asset or assets, or a combination of monetary and non‑monetary assets. Measurement The cost of such an intangible asset is measured at fair value, unless; the exchange transaction lacks commercial substance or, the fair value of neither the asset received nor the asset given up is reliably measurable. IV. Acquisition by way of government grant The acquisition of intangible assets like this usually happens because he public also will be benefited by the services that will be offered by the entity. Examples are airport and landing rights, licenses to TV broadcasts and import licenses. Measurement An entity shall recognize the Intangible asset initially at fair value. Other treatment permitted by PAS 20 other than fair value is at nominal cost plus any expenditure directly attributed to the intangible asset during preparation till it’s intended usage. V. Internally generated intangible asset No intangible asset under research phase will be recognize only intangible assets under development phase may be recognize as an asset subject to compliance of requirements. Expenditure in development phase will be capitalized. While, expenditure on research will be treated as expense. Research activities includes; Activities that aims to obtain knowledge Search for alternatives, materials, devices products and processes. Evaluation and final selection Formulation and design. Development activities Design, construction and testing of ; Pre-use prototypes Chosen alternative for new materials Tools involving new technology. Measurement Cost comprises all directly attributable costs necessary to create, produce and prepare the asset to e capable of operating. Note; Internally generated goodwill should not be recognized as an intangible asset. Also internally generated brands mastheads, publishing titles customer lists shall not be recognized as an intangible asset. Recognition of expense Examples of expenses that are recognized as an expense when incurred are; Start-up cost(unless included in the cost of an item.) Pre-opening cost Pre operating cost expenditure on training activities. expenditure on advertising and promotional activities Note; Expenditure that was once recognized as an expense cannot be recognized as part of the cost.. Initial Recognition An intangible asset shall be measured initially at cost Recognition of cost of intangible asset ceases when the asset is already capable of operating. 2 Measurement after recognition I Cost model Intangible asset shall be carried at its cost less any accumulated amortization and any accumulated impairment losses. II Revaluation model Intangible asset shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated amortization and any subsequent accumulated impairment losses. If an intangible asset’s carrying amount is increased as a result of a revaluation, the increase shall be recognized in other comprehensive income and accumulated in equity under the heading of revaluation surplus. If carrying amount is decreased, the decrease shall be recognized in profit or loss. Decrease shall be recognized also in other comprehensive income to the extent of any credit balance in the revaluation surplus. Grouping of the Intangible asset is called class. Example; Licenses and franchise, copyrights and computer software. If there is an intangibles asset in a class that can’t be revalued because there is no active market for it, the asset shall be carried at its cost less any accumulated amortization and impairment losses. If the fair value of a revalued intangible asset can no longer be measured by reference to an active market, the carrying amount of the asset shall be its revalued amount at the date of the last revaluation by reference to the active market less any subsequent accumulated amortization and any subsequent accumulated impairment losses. Useful Life The accounting for an intangible asset is based on its useful life. An entity shall assess whether the useful life of an intangible asset is finite or indefinite. Useful life is indefinite 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. An intangible asset with a finite useful life is amortized and an intangible asset with an indefinite useful life is not. Factors considered in determining the useful life of an intangible asset; the expected usage of the asset by the entity and whether the asset could be managed efficiently by another management team; typical product life cycles for the asset and public information on estimates of useful lives of similar assets that are used in a similar way; technical, technological, commercial or other types of obsolescence; ) the stability of the industry in which the asset operates and changes in the market demand for the products or services output from the asset; expected actions by competitors or potential competitors; the level of maintenance expenditure required to obtain the expected future economic benefits from the asset and the entity’s ability and intention to reach such a level; the period of control over the asset and legal or similar limits on the use of the asset, such as the expiry dates of related leases; and whether the useful life of the asset is dependent on the useful life of other assets of the entity. Useful life of an intangible asset arises from contract shall not exceed the term of contractual or legal rights. 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. Amortization shall begin when the asset is in the location and condition necessary for it to be capable of operating in the manner intended by management. amortization shall cease at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized. The amortization 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 depreciable amount of an asset with a finite useful life is determined after deducting its residual value Residual value The residual value of an intangible asset with a finite useful life shall be assumed to be zero unless: there is a commitment by a third party to purchase the asset at the end of its useful life; or there is an active market (as defined in IFRS for the asset and: there’s a reference of the residual value in the market. it is probable that such a market will exist at the end of the asset’s useful life. Amortization period and method for an intangible asset with a finite useful life shall be reviewed at least at each financial year‑end. If estimations from each period differs, then it must be changed accordingly. Assets with indefinite useful life shall be reviewed each period to assess if they will still continue to be indefinite. Derecognition An intangible asset shall be derecognized: on disposal; or when no future economic benefits are expected from its use or disposal. Gain or loss arising from the derecognition of an intangible asset shall be determined as the difference between the net disposal proceeds and the carrying amount of the asset. Result will be recognized in profit or loss. Disclosures I. classification of the asset as to useful life and the amortization rates used. II. Amortization method used (finite assets) III. the gross carrying amount and any accumulated amortization (aggregated with accumulated impairment losses) at the beginning and end of the period; IV. the line item(s) of the statement of comprehensive income in which any amortization of intangible assets is included; V. a reconciliation of the carrying amount at the beginning and end of the period showing: additions, indicating separately those from internal development, those acquired separately, and those acquired through business combinations; assets classified as held for sale increases or decreases during the period resulting from revaluations and from impairment losses recognized or reversed in other comprehensive income. impairment losses recognized in profit or loss during the period impairment losses reversed in profit or loss during the period Any amortization recognized during the period; net exchange differences arising on the translation of the financial statements into the presentation currency, and on the translation of a foreign operation into the presentation currency of the entity; and other changes in the carrying amount during the period.