IntangibleassetsResearchanddevelopmentGoodwillIntangibleassetsAssetsarerightstoprobablefutureeconomicbenefitcontrolledbyanentityasaresultofapasttransactionAnintangibleassetisanidentifiablenon-monetaryassetwithoutphysicalformorsubstance

Natureofintangibleassets

nophysicalformandcosthardtoidentifymaynotbeabletodifferentiateintangiblesfromotherassetsexbrandsfromgoodwillmaybemoreuncertaintyovercashflowsgenerated changingbusinesspracticeshavemadeintangiblesmoreimportant

Questionsrelatingtointangibles

whatisthenatureoftheassetwhocontrolstherighttobenefitfromtheassetwhatiscostofacquiringassetdoesassethavefiniteuelandhowshouldassetbeamortised,ifatall shouldassetberecordedatcurrentvalueRegulation–whenshouldtheyberecognised/capitalisedFRS10includedinthebalancesheetonlyiftheycanbeclearlyidentifiedasaseparateassetcostmeasuredindependentlyofgoodwillandotherassetsseparatemarketforintangibleshistoricalcostreadilyascertainableIAS38SeparatelyidentifiableorarisefromseparatecontractualorlegalrightsControlledbytheentityIfitisprobablethattheexpectedfutureeconomicbenefitsthatareattributabletotheassetwillflowtotheentityCostoftheassetcanbemeasuredreliablyIAS38CostSeparateacquisitionAcquiredaspartofabusinesscombinationInternallydevelopedAccountingtreatmentCapitaliseifcriteriametExpenseinincomestatementifnotAccountingtreatmentsubsequenttoinitialrecognitionCost–accumulatedamortisationAmortisedoverUELIfindefinitelife,subjecttoimpairmentreviewRevaluationonlyifactivemarketIAS38-disclosureWhetheruelareindefiniteorfiniteAmortisationmethodsusedWhereamortisationincludedinincomestatementGrosscarryingamountandaccumulatedamortisationatthebeginningandendoftheperiodReconciliationofthecarryingvalueatthebeginningandendoftheperiodResearchanddevelopmentResearchanddevelopmentR+D-oftenviewedasstrategicinvestmenttoenhancefuturecompetitiveness,survivalandprofitsHouseofLords-“R+Dhastoberegardedasaninvestmentwhichleadstogrowthandnotasacost”NatureofR+D

intangibleandoftenspeculativefuturecashflowsuncertainsomewillnotbesuccessfulmaybedifficulttoestablishlinkbetweenexpenditureandbenefitwithreasonablecertainty(oftenmanyyearsapart)noindependentmarketforR+DAccountingtreatment(SSAP13)considerabledifficultyinproducingstandarddefinespureresearch,appliedresearchanddevelopmentwriteoffpureandappliedresearchasexpensewriteoffdevelopmenttoounlesscertaincriteriamet-maythencapitaliseandamortiseDefinitions–foryoutofindintheSSAP13PureresearchAppliedresearchDevelopmentCriteriaforcapitalisationclearlydefinedprojectrelatedexpenditureisseparatelyidentifiableoutcomeofprojecthasbeenassessedwithreasonablecertaintyastotechnicalfeasibilityandcommercialviabilitydeferreddevelopmentcostsandfuturedevelopmentcostsareexpectedtobeexceededbyfuturerevenueadequateresourcesexist,orarereasonablyexpectedtobeavailable,toenabletheprojecttobecompletedIAS38-researchExpenditureonresearchshallberecognisedasanexpensesinceanentitycannotdemonstratethatanintangibleassetsexiststhatwillgenerateprobablefutureeconomicbenefitsActivitiesaimedatobtainingnewknowledgeSearchfor,evaluationandfinalselectionof,applicationsofresearchfindingsorotherknowledgeSearchforalternativesformaterials,devices,products,systemsandservicesTheformulation,design,evaluationandfinalselectionofpossiblealternativesforneworimprovedmaterials,devices,processes,systemsorservicesIAS38-developmentExpenditureisrecognisedasdevelopmentiftheentitycanidentifyanintangibleassetanddemonstratethattheassetwillgenerateprobablefutureeconomicbenefits.Design,constructionandtestingprototypesandnewtechnologiesDesign,constructionandoperationofapilotplantsDesign,constructionandtestingofalternativematerials,devices,products,processes,systemsorservicesCapitalisingdevelopmentcostsIntangibleassetshallbecapitalisedifandonlyifanentitycandemonstrateallofthefollowing:TechnicalfeasibilityIntentiontocompletetheassetAbilitytouse/selltheassetAssetwillgenerateprobableeconomicbenefitAvailabilityofadequatetechnical,financialandotherresourcestocompletetheassetAbilitytomeasurereliablytheexpenditureattributabletoassetduringitsdevelopmentApplicationofIAS38forR+DCancapitalisecostsonlyaftertheprojectsatisfiestheIAS38criteriaAllresearchanddevelopmentcoststhatareusedintheprojectarecapitalisedStaffcostsMaterialcostsOverheadsDepreciationonnoncurrentassetsAmortisationofR+D–usuallyamortisedwhentheproductisbeingsoldAmortisationpolicy–inproportiontosalesvalueofproductMarketingandsalesexpensesareNOTincludedinR+DLectureexample-capitaliseYear2x102x112x122x132x142x15SFP-NCABfwd440,000920,0001,400,0001,400,0001,400,000Staff80,00080,00080,000Depnonmach300,000300,000300,000Ohead50,00050,00050,000Rsupport10,00050,00050,000AdepnonR+D(490,000)(1,120,000)(1,400,000)Cfwd440,000920,0001,400,000910,000280,0000income700,000900,000400,000IS-depn000490,000630,000280,000AmortisationofR+DSalesin2x13,2x14and2x15usedasamortisationbasis2x13amortisation=700,000/2,000,000*1,400,000=490,0002x14amortisation=900,000/2,000,000*1,400,000=630,0002x15amortisation=400,000/2,000,000*1,4000,000=280,000Lectureexample–donotcapitaliseYear2x102x112x122x132x142x15SFP-NCABfwdStaffDepnonmachOheadRsupportAdepnonR+DCfwd700,000900,000400,000IS-exp440,000480,000480,000ComparisonofSSAP13andIAS38inrelationtoR+DSeminarparta–week10CritiqueofSSAP13andIAS38–SSAP13andIAS38availableviaEARLDetailsinseminarfolder-otherreadingsfromoldertextbooksinseminarfolderCritiquingaccountingstandardsAssessingstandardssheetGoodwillGoodwill

Futureeconomicbenefitsarisingfromassetsthatarenotcapableofbeingindividuallyidentifiedandseparatelyrecognisedarisesduetoassetsusedtogetherhavinghighervaluethanindividualassetsinternallygeneratedgoodwill-IAS38purchasedgoodwill–IAS38,IFRS3

Whyareintangiblesandgoodwillhardtoaccountfor

characteristicsandnatureconflictingaccountingpoliceseconomicconsequencesoftreatment

Characteristicsofgoodwill

incapableofrealisationseparatelyfromthebusinessvalueofgwhighlysubjectivenoreliableorpredictablerelationshiptocostsindividualfactorswhichmaycontributetogwhardtovaluevalueofgwcanfluctuatewidelyinshorttermInternallygeneratedgoodwillInternallygeneratedgoodwillgenerallynotcapitalisedDonotfulfilthecriteriainIAS38ControlledbyentityProbablefutureeconomicbenefitCostmeasuredreliablyNotseparatelyidentifiablePurchasedgoodwillAriseonacquisitionofgroupcompaniesbyHConflictingaccountingpoliciesEconomicconsequencesConflictingaccountingpoliciescarryasassetindefinitelywithnoamortisationcarryasassetandamortisethroughISoveruelcarryasassetandamortisethroughP+LreservesbfwdoverueleliminateagainstP+LbfwdreservesimmediatelychargeasexpenseinISinyearofacquisitionKeepasseparatebalanceinshareholdersreservesLectureexample-GoodwillandprofitcalculationGoodwillCostofinvestment=￡200,000Sharecapitalandreservesatacquisition=￡5,000+￡100,000Goodwill=200,000–80%*105,000=116,000Profitforyear￡80,000+80%*￡55,000=￡124,000Goodwillpolicesworkingsin￡’000Question123456NCA210210210210210210GW116104.4104.4CA220220220220220220CL(100)(100)(100)(100)(100)(100)LTL(230)(230)(230)(230)(230)(230)Netassets216204.4204.4100100100SCap101010101010P+Lbfwd505038.4(66)5050Profityear124112.41241248124Other(116)NCI323232323232Scap+res216204.4204.4100100100EconomicconsequencesPotentiallybigimpactonprofitsSSAP22choicewastocapitaliseandamortiseorwriteoffagainstreservesPreferredtreatmentwritingoffreservesResistancetocapitaliseandamortiseFittedinwithdominanceofprudenceconceptatthistimeArgumentwasthatwholeeconomywouldbeeffectedFRS10preferred