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IFRS Depreciation of IAS 38 Intangible Assets

IFRS Depreciation of IAS 38 Intangible Assets-IAS 36 Impairment of Assets, an entity is required to test an intangible asset with an. indefinite useful life for impairment by comparing its recoverable amount with its carrying amount.

(a) Annually.

(b) Whenever there is an indication that the intangible asset may be impaired.

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IFRS Depreciation of IAS 38 Intangible Assets– Recognition and measurement
The initial measurement of an intangible asset depends on whether it has been acquired separately, has been acquired as part of business combination or was internally generated.

Intangible assets that are acquired by an entity and having finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses. Amortisation is calculated to write off the cost of intangible assets less their estimated residual value over its estimated useful life using a method that reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the entity.

IFRS Depreciation of IAS 38 Intangible Assets
Goodwill arising in a business combination is measured as a residual at the date of acquisition.
Goodwill and intangible assets with indefinite useful lives are measured at cost, or in some cases at a revalued amount less accumulated impairment charges. Goodwill and intangible assets with indefinite useful lives are not amortised but instead are subject to impairment testing at least annually.

Internal development expenditure is capitalised if specific criteria are met. These capitalisation criteria are applied to all internally developed intangible assets. Internal research expenditure is expensed as it is incurred.
The useful life, residual value, amortisation period and amortisation method should be reviewed at each reporting date.

Revaluations: Intangible assets cannot be revalued unless there is an ‘active’ market, which requires a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

Retirements and disposals: The gain or loss on disposal is the difference between any net proceeds received and the carrying amount of the asset.

IFRS Depreciation of IAS 38 Intangible Assets

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Intangible asset is an asset that lacks physical substance and usually is very hard to evaluate. It includes patents, copyrights, franchises, goodwill, trademarks, trade names, the general interpretation also includes software and other intangible computer based assets. Contrary to other assets, they generally—though not necessarily—suffer from typical market failures of non-rivalry and non-excitability.

IFRS Depreciation of IAS 38 Intangible Assets

The objective of this Standard is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another Standard. This Standard requires an entity to recognise an intangible asset if, and only if, specified criteria are met.

The Standard also specifies how to measure the carrying amount of intangible assets and requires specified disclosures about intangible assets. An intangible asset is an identifiable non-monetary asset without physical substance.

IFRS Depreciation of IAS 38 Intangible Assets– Recognition and measurement: The recognition of an item as an intangible asset requires an entity to demonstrate that the item meets:

(a) The definition of an intangible asset.

(b) The recognition criteria. This requirement applies to costs incurred initially to acquire or internally generate an intangible asset and those incurred subsequently to add to, replace part of, or service it.

IFRS Depreciation of IAS 38 Intangible Assets–  An asset is identifiable if it either:

  1. Is separable, is capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, identifiable asset or liability, regardless of whether the entity intends to do so.
  2. Arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.
  3. It is probable that the expected future economic benefits that are attributable to the asset will flow to the entity.
  4. The cost of the asset can be measured reliably.

IFRS Depreciation of IAS 38 Intangible AssetsIntangible assets have been argued to be one possible contributor to the disparity between company value as per their accounting records, and company value as per their market capitalisation.Considering this argument, it is important to understand what an intangible asset truly is in the eyes of an accountant. A number of attempts have been made to define intangible assets:

  • Prior to 2005 the Australian Accounting Standards Board issued the Statement of Accounting Concepts number 4. This statement did not provide a formal definition of an intangible asset but did provide that tangibility was not an essential characteristic of asset.
  • International Accounting Standards Board standard 38 defines an intangible asset as: “an identifiable non-monetary asset without physical substance.” This definition is in addition to the standard definition of an asset which requires a past event that has given rise to a resource that the entity controls and from which future economic benefits are expected to flow. Thus, the extra requirement for an intangible asset under IAS 38 is identifiable. This criterion requires that an intangible asset is separable from the entity or that it arises from a contractual or legal right.
  • The Financial Accounting Standards Board Accounting Standard Codification 350

IFRS Depreciation of IAS 38 Intangible Assets:

An intangible asset shall be measured initially at cost. The cost of a separately acquired intangible asset comprises:

(a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.

(b) any directly attributable cost of preparing the asset for its intended use.

IFRS Disclosure of IAS 38 Intangible Assets

IFRS Depreciation of IAS 38 Intangible Assets–  Internally generated intangible assets Internally generated goodwill shall not be recognised as an asset. No intangible asset arising from research shall be recognised. Expenditure on research shall be recognised as an expense when it is incurred. An intangible asset arising from development shall be recognised if, and only if, an entity can demonstrate all of the following:

  1. The technical feasibility of completing the intangible asset so that it will be available for use or sale.
  2.  Its intention to complete the intangible asset and use or sell it.
  3. Its ability to use or sell the intangible asset.
  4. How the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.
  5. The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.
  6. Its ability to measure reliably the expenditure attributable to the intangible asset during its development.

IFRS Depreciation of IAS 38 Intangible Assets

For more information please click the link below:

IFRS Recognition and development cost of IAS 38 Intangible Assets

IFRS Recognition and development cost of IAS 38 Intangible Assets

IFRS Depreciation of IAS 38 Intangible Assets

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