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IAS 38

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3 views6 pages

IAS 38

ias38

Uploaded by

Thanh Nhật
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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1.

Objective and Scope

IAS 38 outlines the accounting treatment for intangible assets that are not specifically addressed
in other accounting standards. The objective is to specify:

 When intangible assets should be recognized.


 How they should be measured both initially and subsequently.
 The required disclosures to provide useful information to users of financial statements.

Scope

IAS 38 applies to all intangible assets except those covered by other standards, such as:

 Inventories (IAS 2)
 Financial instruments (IFRS 9)
 Deferred tax assets (IAS 12)
 Lease assets (IFRS 16)
 Goodwill acquired in business combinations (IFRS 3)

2. Definitions

1. Intangible Asset:
o A non-monetary asset without physical substance that is identifiable, controlled,
and expected to generate future economic benefits.

2. Identifiability:
o The asset is separable (can be sold, licensed, or exchanged independently) or
arises from contractual/legal rights.

3. Control:
o The entity has the power to obtain benefits and restrict others’ access to those
benefits.

4. Future Economic Benefits:


o Includes revenue from the sale of products or services, cost savings, or other
benefits.

3. Recognition of Intangible Assets

An intangible asset is recognized if:

1. It meets the definition of an intangible asset.


2. It is probable that future economic benefits will flow to the entity.
3. The cost of the asset can be measured reliably.

4. Internally Generated Intangible Assets

Phases:

1. Research Phase:
o Includes activities to gain new knowledge and insights.
o Costs incurred are always expensed as incurred.
o he research phase involves activities aimed at gaining new scientific or technical
knowledge and understanding. Costs incurred during this phase cannot be
capitalized and must be expensed as incurred, because the entity cannot
demonstrate that the expenditure will result in future economic benefits .
o Examples:
 Investigating new materials or processes.
 Searching for alternative solutions.

2. Development Phase:
o Includes activities to apply research findings to create or improve
products/processes.
o The development phase begins when the entity applies its research findings to a
plan or design for the production of new or substantially improved products,
processes, systems, or services. Costs incurred during this phase can be
capitalized as an intangible asset, but only if the entity meets specific criteria.
o Costs can be capitalized if the following criteria are met:
 Technical Feasibility: The asset can be completed.
 Intent: There is a plan to complete and use/sell the asset.
 Ability to Use/Sell: There is a clear market or internal use.
 Future Economic Benefits: Probable inflows are identifiable.
 Resources Available: The entity has the means to complete the asset.
 Measurability: Costs can be reliably tracked.

5. Measurement

Initial Recognition:

 Intangible assets are initially measured at cost:


Subsequent Measurement:

1. Cost Model:
o Carry the asset at cost less accumulated amortization and impairment losses.
2. Revaluation Model:
o Carry the asset at fair value (if active market exists) less accumulated
amortization and impairment losses.

Costs Included in Measurement:

 Purchase price (net of trade discounts).


 Costs of testing.
 Professional/legal fees for acquiring the asset.

Costs Excluded:

 General overheads.
 Training costs.
 Start-up and pre-operational costs.
 Costs incurred once the asset is operational.

6. Amortization and Useful Life

Amortization:

1. Finite Useful Life:


o The asset is amortized over its useful life (on a straight-line basis or another
systematic method).
o Starts when the asset is available for use.

2. Indefinite Useful Life:


o No amortization.
o The asset must be tested annually for impairment.

Review of Useful Life and Amortization:

 The useful life and amortization method are reviewed annually.


 Changes are treated prospectively as a change in estimate.
7. Impairment of Intangible Assets

IAS 36 Impairment of Assets applies:

 An intangible asset is impaired if its carrying amount exceeds its recoverable amount.
 Recoverable Amount:

 Impairment losses are recognized in profit or loss.

8. Derecognition

An intangible asset is derecognized:

1. When it is disposed of, or


2. When no further economic benefits are expected.

Accounting for Derecognition:

 Any difference between the disposal proceeds and the carrying amount is recognized as a
gain or loss in profit or loss.

9. Disclosure Requirements

Entities must disclose:

1. Whether the useful life is finite or indefinite.


2. Amortization methods and useful life (for finite assets).
3. Gross carrying amount and accumulated amortization/impairment.
4. Reconciliation of the carrying amount at the beginning and end of the period, showing:
o Additions.
o Amortization.
o Impairment losses.
o Disposals.

For Internally Generated Intangibles:

 Disclose how the recognition criteria were met.


 Explain judgments made to determine technical feasibility and future economic benefits.
10. Examples of Intangible Assets

Acquired Assets Internally Generated Assets

Patents Developed software

Trademarks Product prototypes

Copyrights In-house research systems

Licenses Designs and models

Customer lists Testing platforms

11. Formulas and Key Concepts

1. Cost of Intangible Asset:

2. Carrying Amount:

3. Amortization Expense:

4. Impair
ment Test:

12. Practical Application Summary

1. Research Phase Costs:


o Always expensed as incurred.
2. Development Phase Costs:
o Capitalize if IAS 38 criteria are met.
3. Finite Life Assets:
o Amortized systematically over the useful life.
4. Indefinite Life Assets:
o Not amortized but tested annually for impairment.
5. Acquired Intangibles:
o Recognized at cost or fair value if acquired in business combinations.

13. Key Considerations

 Active Market Requirement:


o Revaluation is allowed only if an active market exists for the intangible asset.
 Start-Up Costs:
o Costs such as training and market research are expensed.
 Judgment:
o Entities must apply significant judgment when assessing development criteria,
useful life, and impairment.

This comprehensive guide ensures an in-depth understanding of IAS 38's principles and
application to various scenarios in practice.

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