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AFA
Intangibles - Slides
| Question | Answer |
|---|---|
| EFRAG 2019 concerns about IAS 38 | due to age of IAS 38, concerns about adequacy when identifying, recognising, and measuring internally generated assets... fundamental overhaul of standard needed |
| steps for recognising intangibles | 1. Definition 2. recognition criteria 3. externally acquired and internally generated intangibles distinction 4. measuring cost of intangible to be recognised 5. estimated useful life and subsequent measurement 7. disclosure requirements |
| intangible assets definition | identifiable, non monetary asset without physical substance |
| shown on IS if | probable future economic benefits cost / value can be reliably measured |
| underlying assumptions | expected future benefit assessed on basis of reasonable and supported assumptions buyer would not invest if no future economic benefit its a transaction, therefore cost should be easy to ascertain |
| acquiring intangibles externally | individually / separately or as part of a business combination |
| developing intangibles internally | research and development or software development costs or exploration and evaluation costs |
| goodwill definition | non-identifiable intangible asset recognised in business combination cannot separate assets when acquired |
| elements of cost of intangibles | purchase price, import duties, non-refundable taxes, directly attributable costs to bring to working conditions deduct - trade discounts and rebates |
| internally developed intangible assets treatment | commonly expensed as incurred |
| examples of internally developed intangible assets not recognised because cannot distinguish / separate | internally generated brands, publishing titles, customer lists |
| R&D - treatment of research expenditure | expensed to IS as incurred |
| R&D - treatment of development expenditure | capitalised when criteria met |
| R&D treatment under US GAAP | all R&D expensed as incurred |
| research expenditure definition | original and planed investigation with prospect of gaining new understanding |
| development expenditure definition | application of research to plan / design for production of new products |
| development cost capitalisation criteria | 1. technical feasibility of intangibles 2. intention to complete the asset 3. ability to use or sell the asset 4. availability of resource to complete 5. reliably measure expenditure 6. justify future economic benefits |
| main difference in academic and practice | most companies expense all R&D costs in practice |
| what can be a deterrent which causes companies to expense all R&D | creative accounting / earnings management |
| audit fees positively associated with | capitalising all development costs |
| two methods for revaluation | cost model and revaluation model |
| cost model = | cost - depreciation - impairment loss |
| revaluation model = | FV @ revaluation - depreciation - impairment |
| which is most common in practice | cost model |
| indefinite useful life treatment | not amortised. tested for impairment and reassessed annually |
| finite useful life treatment | depreciated (method should match consumption / useful life pattern)` |
| mandatory disclosures for intangibles | - distinguish between internally generated and others - amortisation method use (finite UL) - gross carrying amount and amortisation amount - reconciliation of carrying amounts at beginning and end of period |
Created by:
amyperston
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