IAS 38 INTANGIBLE ASSETS CA. Anuradha Jain Ex-Joint Director (Tech), ICAI

2 Scope Does not apply to financial assets mineral rights and exploration and development costs incurred by mining and oil and gas companies intangible assets arising from insurance contracts issued by insurance companies intangible assets covered by another IAS, such as intangibles held for sale, deferred tax assets, lease assets, assets arising from employee benefits, and goodwill acquired in a business combination

3 Key provisions Intangible assets-meaning identifiable non-monetary asset without physical substance

4 Key provisions Control An entity controls an asset if it has the power to obtain the future economic benefits flowing from the underlying resource& to restrict the access of others to those benefits

5 Key provisions Mode of acquisition of Intangible assets separate purchase as part of a business combination a government grant exchange of assets self-creation (internal generation)

6 Key provisions Recognition criteria it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise; & cost of the asset can be measured reliably

7 Key provisions Cost Purchase price Directly attributable cost of preparing the asset for its intended use

8 Key provisions Directly attributable costs Cost of employee benefits arising directly from bringing the asset to its working condition Professional fees arising directly from bringing the asset to its working condition Cost of testing whether the asset is functioning properly

9 Key provisions Don’t capitalize Cost of introducing a new product or service (including costs of advertising & promotional activities) Cost of conducting business in anew location or with a new class of customer (including cost of staff training) Admn & other general overhead cost

10 Key provisions If payment is deferred beyond normal credit period, cost is cash price equivalent.Difference to be recognized as interest over the period of credit unless it can be capitalized under IAS 23

11 Key provisions Additional criteria for internally generated intangible assets Classify the generation of asset into research phase & development phase Charge all research cost to expense Development costs are capitalised only after technical and commercial feasibility of the asset for sale or use have been established- Enterprise must intend and be able to complete the intangible asset & either use it or sell it and be able to demonstrate how the asset will generate future economic benefits When not possible to distinguish whether from research phase or development phase-assume from research phase

12 Key provisions Not treated as intangible assets if generated internally Goodwill Brand Mastheads Publishing titles Customer lists Start up costs Training costs Advertising costs Relocation costs

13 Key provisions Acquisition as part of business combination Rebuttable presumption that the fair value (and therefore the cost) of an intangible asset acquired in a business combination can be measured reliably Expenditure (included in the cost of acquisition) on an intangible item that does not meet both the definition of and recognition criteria for an intangible asset should form part of the amount attributed to the goodwill recognised at the acquisition date non-recognition due to measurement reliability should be rare -only circumstances in which it can happen is when the intangible asset arises from legal or other contractual rights and either: (a)is not separable; or (b)is separable, but there is no history or evidence of exchange transactions for the same or similar assets, & otherwise estimating fair value would be dependent on immeasurable variables

14 Key provisions Acquisition by way of exchange Measured at Fair value unless a) the exchange transaction lacks commercial substance; or b) fair value of neither the asset received nor the asset given up is reliably measurable If acquired asset not measured at fair value-measure its cost at the carrying amount of the asset given up

15 Key provisions Initial Recognition: Computer Software Purchased: capitalise Operating system for hardware: include in hardware cost Internally developed (whether for use or sale): charge to expense until technological feasibility, probable future benefits, intent and ability to use or sell the software, resources to complete the software, and ability to measure cost Amortisation: over useful life, based on pattern of benefits

16 Key provisions Subsequent measurement 2 models permitted : Cost Revaluation

17 Key provisions Cost model Asset carried at Cost Less: Accumulated depreciation & impairment

18 Key provisions Revaluation model Permitted when an intangible asset has a quoted price in an active market asset carried at a revalued amount, being its fair value at the date of revaluation less subsequent depreciation & impairment losses Regular revaluations Can be applied only to measure an asset subsequent to its initial recognition & measurement at cost.

19 Key provisions Revaluation model if an item is revalued, the entire class of assets to which that asset belongs should be revalued unless there is no active market for a particular asset-in such case that asset should be carried at cost less accumulated amortization & impairment losses with the rest of the class being carried at revalued amount

20 Key provisions Revaluation model revaluation - increase in value a)recognized in other comprehensive income & accumulated in equity b) reversals of previous revaluation decreases are credited to income statement to the extent the decrease was recognized as an expenses revaluation - decrease in value charged first against revaluation surplus in equity related to the specific asset,any excess against profit or loss On disposal of a revalued asset-revaluation surplus remains in equity & not reclassed to profit or loss

21 Key provisions Classification based on Useful life Indefinite life-No foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity Example: Long established brands & publishing titles that have demonstrated their ability to survive changes in the economic environment Finite life-A limited period of benefit to the entity

22 Key provisions Amortization-Assets with finite useful life Amortized over useful life Impairment testing required when there is an indication that the carrying amount exceeds the recoverable amount

23 Key provisions Amortization-Assets with indefinite useful life Not Amortized Impairment testing required on an annual basis Recognize impairment loss if recoverable amount lower than carrying amount Review whether the asset continues to have indefinite useful life

24 Key provisions Review of amortization period & method Atleast at each financial year end Change to be accounted for change in accounting estimate

25 Key provisions Subsequent expenditure Expensed off unless - it is probable that this expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standard of performance; and -the expenditure can be measured and attributed to the asset reliably

26 Main differences with Indian GAAP Subsequent measurement IFRS Cost or revalued amount AS 26 Cost

27 Main differences with Indian GAAP Useful life IFRS Finite or indefinite AS 26 Finite;generally not exceeding 10 years;though rebuttable

28 Main differences with Indian GAAP Goodwill IFRS Not amortized but subject to annual or frequent impairment tests AS 26 Arising on amalgamation- amortize in 5 years Arising on acquisition-not amortized but tested for impairment

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