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
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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;
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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
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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.
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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:
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additions, indicating separately those from
internal
development, those acquired separately, and those
acquired through business combinations;
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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
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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.