Intangible Asset

CORPORATE ACCOUNTING

Module 3

Intangible assets

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Objectives

• Understand the key characteristics of

intangible assets.

• Examine the initial recognition and

measurement criteria of intangible

assets.

• Accounting for intangibles subsequent

to initial recognition.

• Amortisation of intangibles.

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Process for Asset Recognition

Does it meet the definition?

If so, does it meet the recognition criteria?

If so, how is it to be initially measured?

Once recognised how is it to be

subsequently measured, tested and

derecognised?

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Definition of intangible asset

What are intangible assets?

An intangible asset is an identifiable non-monetary asset

without physical substance. (AASB 38, Para 8)

Key features:

o Identifiable

o non-monetary

o without physical substance

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Examples include:

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Patents – government grant to produce/sell invention,

20 years.

Copyrights – right to reproduce & sell (extends 70 years

after author’s death).

Trademarks – distinctive products or services.

Franchises – licence to sell under specific conditions.

Computer software

Licences

Research & Development projects

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The nature of intangible assets

Why consider intangible assets in a separate standard?

Intangible assets:

•Lack physical substance. The asset can be used at the same time for

multiple purposes e.g. customer list;

•Many intangibles are not subject to the diminishing returns

characteristic of physical assets; e.g. software program for student

enrolments.

•Intangibles may have network effects; the value increases as use

increases e.g. telephone network.

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The nature of intangible assets

• Intangibles may be more difficult to manage and operate than

tangible assets;

• Property rights are harder to determine;

• The relationship between the investment and ultimate benefits is

hard to track.

• There is a high degree of uncertainty regarding the future benefits

of intangible assets;...