1. Intangible Assets Mark Fielding-Pritchard 2015Intangibles1

2. Two Main Characteristics : Characteristics (1) Lack of physical existence. (2)They are not financial instruments. Normally classified as long-term asset. Common types of intangibles: Patents Copyrights Franchises or licenses Trademarks or trade names Goodwill Intangible Assets Issues Intangibles 2 2015

3. 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. Intangible Assets Issues Intangibles 3 2015 Internally Created Intangibles: Expense as incurred Only capitalize direct costs incurred in developing the intangible, such as legal costs.

4. 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 4 2015

5. 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. Intangible Assets Issues Indefinite-Life Intangibles: No foreseeable limit on time the asset is expected to provide cash flows. No amortization. Intangibles 5 2015

6. Six Major Categories: 1)Marketing-related. 2)Customer-related. 3)Artistic-related. 4)Contract-related. 5)Technology-related. 6)Goodwill. Types of Intangibles Intangibles 6 2015

7. 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. Research & Development Costs IAS 38 Intangibles 7 2015

8. Identifying R & D Activities Research Activities Planned search or critical investigation aimed at discovery of new knowledge. Examples Laboratory research aimed at discovery of new knowledge; searching for applications of new research findings. Development Activities Translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use. Examples Conceptual formulation and design of possible product or process alternatives; construction of prototypes and operation of pilot plants. Research & Development Costs Intangibles 8 2015

9. 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 9 2015

10.  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 10 2015 Research & Development Costs

11.  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 11 2015 Research & Development Costs

12. 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. Research & Development Costs Intangibles 12 2015

13. 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. Presentation of Intangibles Intangibles 13 2015

14. 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 14 2015