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Chapter 9:
Intangible non-current assets
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What you will learn?
Definition of intangible non-current assets
Research and development costs
Disclosure in financial statements
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Definition
An identifiable non-monetary asset without physical substance
The item must either be capable of being sold as a
Identifiable
single item or must arise from contractual rights
Non- The item must not be cash or an asset to be
monetary settled in a fixed amount of cash
The item must be controlled by the entity as a
An Asset result of past events and result in probable future
economic benefits
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Definition
Acquired externally
Intangible
asset
Generated internally
future economic benefits associated with
Intangible the item will flow to the entity
asset is
recognised if item’s cost can be measured reliably
IAS 38 prohibits the recognition of internally generated:
Brands Customer lists
Mastheads Goodwill
Publishing titles
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Definition
In comparison with tangible non-current assets
Tangible Non-current Intangible non-current
asset asset
Have physical substance No physical substance
Identification eg: land and buildings.. eg: copyright
Involve expenditure purchased or generated
incurred to bring assets internally. Expenditure
Cost
to present condition incurred is not recognised
in the cost of asset
Cost of the intangible Purchasd intangible non-
non-current asset is current assets are
capitalised capitalised. Internally
Capitalisation
generated assets may be
capitalised when certain
criterias are met
Depreciation is a Amortisation is a
Depreciation reflection of the wearing reflection of a wearing
out of the asset out of (capitalised) assets
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Definition
Exam focus point
According to IAS 38 Intangible assets, which of the following
are intangible non-current assets in the financial statements
of Lota Co?
1 A patent for a new glue purchased for $20,000 by Lota Co
2 Development costs are capitalised in accordance with IAS 38.
3 A license to broadcast a television series, purchased by Lota Co for
$150,000
4 A state of the art factory purchased by Lota Co for $1.5 million
A. 1 and 3 only B. 1, 2 and 3 only
C. 2 and 4 only D. 2,3 and 4 only
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Definition
Exam focus point
According to IAS 38 Intangible assets, which of the following
are intangible non-current assets in the financial statements
of Lota Co?
1 A patent for a new glue purchased for $20,000 by Lota Co
2 Development costs are capitalised in accordance with IAS 38.
3 A license to broadcast a television series, purchased by Lota Co for
$150,000
4 A state of the art factory purchased by Lota Co for $1.5 million
B. 1, 2 and 3 only
A factory is a tangible asset as it has physical form. The others
are intangible assets
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Research and development costs
Definitions
original and planned investigation
undertaken with the prospect of gaining
Research
new scientific or technical knowledge and
understanding
the application of research findings or
other knowledge to a plan or design for the
production of new or substantially
Development
improved materials, devices... prior to the
commencement of commercial production
or use
the systematic allocation of the
Amortisation depreciable amount of an intangible asset
over its useful life
Depreciable the cost of an asset, or other amount
amount substituted for cost, less its residual value
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Research and development costs
Examples
Research Development
Activities aimed at obtaining The design, construction and
new knowledge testing of pre-production
prototypes and models
The search for applications
of research findings or other The design of tools, jigs,
knowledge moulds and dies involving
new technology
The search for product or
process alternatives The design, construction and
operation of a pilot plant that
The formulation and design is not of a scale economically
of possible new or improved
product or process The design, construction and
alternatives testing of a chosen alternative
for new/improved materials
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Research and development costs
Components of R&D costs
R&D costs will include all costs that are
directly attributable to R&D activities,
or that can be allocated on a reasonable basis
Salaries, wages and other employment – related costs of
personnel engaged in R&D activities
Costs of materials and services consumed in R&D activities
Depreciation of property, plant and equipment to the extent
that these assets are used for R&D activities
Overhead costs related to R&D activities
Other costs (amortisation or patents/licenses used for R&D
activities)
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Research and development costs
Recognition of R&D costs
Research costs
Work to gain new knowledge and understanding
Must be recognised as expense in profit or loss
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Research and development costs
Recognition of R&D costs
Development costs
Application of research findings for commercial purpose
Must be capitalised if specific criteria met
Probable future economic benefits
Intention to complete and use/sell it
Resources adaquate and available
Ability to use or sell the asset
PIRATE
Technical feasibility
Expenditure reliably measurable
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Disclosure in financial statements
IAS 38 Intangible assets requires both numerical and
narrative disclosures for intangible assets
The financial statements should show a reconciliation of
the carrying amount of intangible assets at the beginning
and at the end of the period.
The movement on intangible assets includes:
Additions Amortisation
Disposals Any other movements
Reductions in carrying
amount
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Disclosure in financial statements
Example: Disclosure on movement intangible assets
Total Development Patents
costs
$ $ $
Cost
At 1 January 20X4 40,000 30,000 10,000
Additions in year 19,000 15,000 4,000
Disposals in year (1,000) - (1,000)
At 31 December 20X4 58,000 45,000 13,000
Amortisation
At 1 January 20X4 11,000 5,000 6,000
Charge for year 4,000 1,000 3,000
Eliminated on disposals (500) - (500)
At 31 December 20X4 14,500 6,000 8,500
Carrying amount
At 31 December 20X4 43,500 39,000 4,500
At 1 January 20X4 29,000 25,000 4,000
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Disclosure in financial statements
Narrative disclosure
Accounting policies for intangible assets that have been
adopted
For each class of intangible assets (including development
costs), disclosure is required of the following:
The method of amortisation used
The used life of the assets or the amortisation rate used
The gross carrying amount, the accumulated amortisation
and the accumulated impairment losses
The carrying amount of internally generated intangible
assets
The line item(s) of the statement of profit or loss in which
any amortisation of intangible assets is included
