Intangibles

PAS 38
Intangible Assets
• Defined as an identifiable non-monetary asset without
physical substance
• Must be controlled by the entity as a result of past
event and from which future economic benefits are
expected to flow to the entity
• An Intangible asset has 3 important elements.
1. Identifiability
To be identifiable, an asset should be:
• Separable – the asset can be sold, leased, exchanged separately from the entity
• Arises from contractual/legal rights
(ex. Contract of sale for purchase of intangible)
2. Control
The entity should be able to enjoy the benefits of using the intangible asset
and the power to prohibit other entities or third persons from enjoying those
benefits
(Ex. A patented invention is only enjoyed by the company that invented the
invention)
3. Future Economic Benefits
There should be an expected or possible future economic benefits from
using the intangible asset.
(Ex. Net cash-inflow from using the intangible OR reduction in operating
costs)
Recognition of Intangible Asset
• An intangible asset shall be recognized if the following
conditions are present:
1. It is probable that future economic benefits
attributable to the asset will flow to the entity
2. The cost of the intangible asset can be measure
reliably
Initial Measurement of Intangible
Asset
• Intangible Asset is initially measured at cost (PAS 38,
paragraph 24)
• The 3 elements of cost for intangible asset are:
1.) Purchase Price
2.) Import duties and nonrefundable purchase tax
3.) Directly Attributable Costs in obtaining the Intangible Asset
Purchase Price
An intangible asset’s purchase price depends on the specific manner of
acquiring the intangible asset

Separate Acquisition
• An intangible asset is acquired via purchase using cash, a debt
instrument (deferred payment such as accounts payable, notes payable,
bonds payable) or issuance of shares.
• The Purchase price is generally the cash price equivalent unless the cash
price equivalent is not determinable. 
• For deferred payments, it is the net payable for accounts payable
(Accounts Payable less cash discounts), the Fair Value of intangible asset
for Notes Payable and issuance of shares (or Fair Value of Note or of the
shares issued if Intangible Asset’s Fair Value is not determinable).
Acquisition by Way of Government Grant
• Purchase price is the fair value of the intangible asset received
• We also credit a corresponding liability account “Unearned
Income from Government Grant

Acquisition by Exchange of Assets

• There is commercial substance

Acquisition by Business Combination

• An asset is said to have been acquired in a business
combination when the entity purchases or gains control of
another entity and acquires the purchased entity’s assets
• Purchase price is the Fair Value of the Asset
Internally Generated Intangible Asset
• No purchase price for Internally generated intangible
asset
• Only Directly attributable costs comprises Internally
Generated Intangible Asset and the amortization of
other intangible assets required to generate the
intangible asset
Directly Attributable Costs
• The following are some directly attributable costs of
intangible assets:
1. Costs of employee benefits and professional fees
arising from bringing the asset to its working condition
2. Import duties and non-refundable purchase taxes
3. Costs of testing whether the asset is functioning
properly
Directly attributable costs of
Internally Generated Intangible
Assets
1. Materials, Labot & FOH incurred in generation of the
intangible asset
2. Fees to register a legal right
3. Amortization of patents, licenses and other intangible
assets, if these intangible assets were used for the
development of the new internally generated
intangible asset.
4. Cost of employee benefits (as defined in IAS 16 ) and
professional fees arising from generation of the
Intangible Asset
• The following internally generated costs are NOT
recognized as intangible assets:
1. Brands
2. Mastheads (Name of Newspaper; ex. Philippine Daily
Inquirer)
3. Publishing Titles
4. Customer lists
5. Goodwill
6. Other items similar in substance
• Goodwill will only be recognized as an intangible asset if
it is acquired via a business combination
• These internally generated items may also be
considered as components of internally generated
goodwill except if these assets are acquired in a
business combination
• If these costs are acquired via a business combination
(when entity purchases another company, the internally
generated assets of the purchased company are
recognized as intangible assets of the parent entity)
Identifiable Intangible Assets
• PAS 38 specifically pertains to identifiable intangible assets
• If the intangible asset is acquired through purchase, there is
a transfer of legal right that would make the asset
identifiable
• Examples of identifiable intangible assets are:
1. Patent 5. Customer List
2. Copyright 6. Computer software
3. Franchise 7. Broadcasting license
4. Trademark or brand name 8. Airline right/fishing right
Patent
• An exclusive right granted by the government to an inventor, enabling
him to control the manufacture, sale or other use of invention for a
specified time
• Generally, has a legal life of 20 years. All patents have finite life Cannot
be renewed.
• A patent’s life van only be extended by issuing a new patent.
• If patent is internally developed, it’s directly attributable costs includes:
(1) costs of licensing, (2) other legal fees on acquisition in securing the
rights of the patent
• Note: Legal fees incurred after acquisition (ex. Litigation Cost of
defending patent in a lawsuit) is expensed outright in profit or loss
• A competitive patent acquired to protect an existing patent is expensed
outright in profit or loss
Trademark
• A symbol, sign, slogan or name used to mark a product
to distinguish it from other products
• Generally has a legal life of 10 years but is also
renewable for 10 years each.
• The number of renewal attempts is indefinite, which is
why most trademarks are classified as having indefinite
life
• General rule only, if problem states trademark cannot
be renewed, trademark has finite life
Copyright
• An exclusive right granted by the government to the
author, composer or artist enabling the recipient of the
copyright to publish, sell or otherwise benefit from the
literary, musical or artistic work
• Under the intellectual Property Code of the PH, as a
general rule, the term of protection of copyright is
during the life of the author and 50 years after the
author’s death (legal life)
• It’s cost includes the expenses incurred in producing the
work made by the author
Franchise
• One party called the Franchisor grants certain rights to
another party called the Franchisee.
• The franchise may be granted for a definite period or an
indefinite period A franchise is contract based and may
be between:
1. Government and a private entity or individual (also
called license)
2. Private entities or individuals
Unidentifiable Intangible Asset
• An intangible asset is unidentifiable if it cannot be sold,
TRUE/FALSE QUESTIONS
1. Some intangible assets are not required to be amortized every year. T
2. The cost of acquiring a customer list from another company is recorded as an
intangible asset. T
3. The cost of purchased patents should be amortized over the remaining legal life of the
patent. F
4. If a new patent is acquired through modification of an existing patent, the remaining
book value of the original patent may be amortized over the life of the new patent. T
5. In a business combination, a company assigns the cost, where possible, to the
identifiable tangible and intangible assets, with the remainder recorded as goodwill. T
6. Internally generated goodwill should not be capitalized in the accounts. T
7. Internally generated goodwill associated with a business may be recorded as an asset
when a firm offer to purchase that business unit has been received. F
8. All intangibles are subject to periodic consideration of impairment with corresponding
potential write-downs. T
• Lynne Corporation acquired a patent on May 1, 2012. Lynne paid cash of
$40,000 to the seller. Legal fees of $1,000 were paid related to the
acquisition. What amount should be debited to the patent account?
$41,000
• Contreras Corporation acquired a patent on May 1, 2012. Contreras paid
cash of $35,000 to the seller. Legal fees of $900 were paid related to the
acquisition. What amount should be debited to the patent account?
$35,900
• Mini Corp. acquires a patent from Maxi Co. in exchange for 2,500 shares
of Mini Corp.’s $5 par value common stock and $90,000 cash. When the
patent was initially issued to Maxi Co., Mini Corp.’s stock was selling at
$7.50 per share. When Mini Corp. acquired the patent, its stock was
selling for $9 a share. Mini Corp. should record the patent at what
amount? $112,500
• Alonzo Co. acquires 3 patents from Shaq Corp. for a total of
$300,000. The patents were carried on Shaq’s books as
follows: Patent AA: $5,000; Patent BB: $2,000; and Patent
CC: $3,000. When Alonzo acquired the patents their fair
values were: Patent AA: $20,000; Patent BB: $240,000; and
Patent CC: $60,000. At what amount should Alonzo record
Patent BB? $225,000
• Jeff Corporation purchased a limited-life intangible asset for
$150,000 on May 1, 2010. It has a useful life of 10 years.
What total amount of amortization expense should have
been recorded on the intangible asset by December 31,
2012? $40,000
THANK
YOU