Intangible Assets
Mark Fielding-Pritchard
Intangibles
2015
1
Intangible Assets Issues
Characteristics
Two Main Characteristics:
(1)
Lack of physical existence.
(2) They are not financial instruments.
Normally classified as long-term asset.
Common types of intangibles:
Patents
Trademarks or trade names
Copyrights
Goodwill
Franchises or
licenses
Intangibles
2015
2
Intangible Assets Issues
Purchased Intangibles:
Recorded at cost.
If purchased in exchange of stock, the fair value
of the consideration given or received which is
evident, should be recognized.
Includes all costs necessary to make the
intangible asset ready for its intended use.
Internally Created Intangibles:
Expense as incurred
Only capitalize direct costs incurred in developing the
intangible, such as legal costs.
Intangibles
2015
3
Intangible Assets Issues
Determine The Useful Life
•
Expected Use
•
Useful Life of relative assets
•
Legal Regulatory Conceptual Framework
•
Limiting useful life
•
Law supporting renewal or extension
•
Effect of obsolesce, demand, competition.
Level of Maintenance cost
Intangibles
2015
4
Intangible Assets Issues
Amortization of Intangibles
Limited-Life Intangibles:
•
Amortize to (Cost Less Residual Value)
•
Assume zero Residual value unless it has value to another company after
its useful life
•
Reflect the pattern in which the company consumes the asset (if
Determined)
•
Credit asset account or accumulated amortization.
Indefinite-Life Intangibles:
•
No foreseeable limit on time the asset is expected to provide cash flows.
•
No amortization.
Intangibles
2015
5
Types of Intangibles
Six Major Categories:
1) Marketing-related.
2) Customer-related.
3) Artistic-related.
4) Contract-related.
5) Technology-related.
6) Goodwill.
Intangibles
2015
6
Research & Development Costs IAS 38
Frequently results in something that a company
patents or copyrights such as:
new product,
process,
idea,
formula,
composition, or
literary work.
Because of difficulties related to identifying costs
with particular activities and determining the future
benefits, all R & D costs are expensed when
incurred.
Intangibles
2015
7
Research & Development Costs
Identifying R & D Activities
Research Activities
Examples
Planned search or critical
Laboratory research aimed at discovery of
investigation aimed at discovery of new knowledge; searching for
applications of new research findings.
new knowledge.
Development Activities
Examples
Conceptual formulation and design of
Translation of research findings or other
possible product or process alternatives;
knowledge into a plan or design for a new
construction of prototypes and operation
product or process or for a significant
of pilot plants.
improvement to an existing product or
process whether intended for sale or use.
Intangibles
2015
8
Research & Development

Research expenses are written off as they arise through the
statement of financial performance

Research assets are capitalised and the depreciation written off
through the statement of financial performance as usual

Development expenses must be capitalised in the statement of
financial position

Development assets are capitalised but depreciation is allocated to
development expenses in the statement of financial position

Development asset will be depreciation form start of commercial
activity over useful life
Intangibles
2015
9
Research & Development Costs

Personnel: cost of personnel engaged in research is recorded as
expense.

cost of personnel engaged in development is recorded as an asset

Purchased intangibles: recognize and measure at fair value then
account for in accordance with their nature.
Example : i) Cost of successfully defending patent.
ii) Legal fees to obtain patent.
Intangibles
2015
10
Research & Development Costs

Contract services: Expense if research, capitalize if development the
cost of services performed by others.
Example: i) Research cost incurred under contract with another
company.

Indirect costs: same principle.
Example: i) material, labor and overhead costs of product
development.
ii) Commissions of sales staff marketing new products.
Intangibles
2015
11
Research & Development Costs
Other Costs Similar to R & D Costs
• Start-up costs for a new operation: Incurred for one time
activities to start a new operation.
• Initial operating losses: Some contend that the initial
operating losses which incurred in the start up should be
capitalized as they are not avoidable.
• Advertising costs: Company must expense advertising
cost as incurred but company can record it as an
asset if any tangible asset used.
Intangibles
2015
12
Presentation of Intangibles
Balance sheet
• Intangible assets shown as a separate item.
Income statement
• Report amortization expense and impairment losses in
continuing operations.
• Total R&D costs charged to expense must be disclosed.
Intangibles
2015
13
Parentis Q206

5 points

Initially research, expense everything

After 30 June 2009 it becomes development

Costs after 30/06/09 capitalised

Begin depreciation from 31/12

Can only capitalise costs incurred ie not $1.6m
Intangibles
2015
14