INTANGIBLE ASSET

INTANGIBLE ASSETRenelyn C. Gonzales II-BSA1INITIAL MEASUREMENT OF INTANGIBLE ASSETCOST OF INTANGIBLE ASSET(CONTINUATION)Acquisition as part of business combination

A. If an intangible asset is acquired in a business combination, the cost of the intangible asset is based on the fair value on the date of acquisition. B. If there is an active marketthe quoted price of an identical asset provides the most reliable evidence of fair value. C. If there is no active marketthe fair value of the intangible asset is equal to any available quoted price for identical or similar asset. Acquisition BY GOVERNMENT GRANT

An intangible asset may be acquired by way of a government grant, free of charge or for nominal consideration. This may occur when a government transfers or allocates to an entity intangible assets such as:Airport land rights Licenses to operate radio or television stations Import licenses or quotas or rights to access restricted resources.

In accordance with PAS 20, the intangible asset acquired by way of government grant may be initially recorded at either:

a. Fair value

b. Nominal amount or zero, plus any expenditure that is directly attributable to preparing the asset for its intended use. Acquisition BY EXCHANGE

One or more intangible assets may be acquired in exchange in exchange for a nonmonetary asset, or a combination of monetary asset and nonmonetary asset.

The cost of such an intangible asset is measured at fair value unless the exchange transaction lacks commercial substance or the fair value of neither the asset given up nor the asset received is reliably measurable.

If the exchange transaction lacks commercial substance when the cash flows of the asset received do not differ significantly from the cash flows of the asset transferred. INTERNALLY GENERATED ASSET

The cost of an internally generated intangible asset compromises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating it in the manner intended be management.

Examples of directly attributable costs are:Cost of materials and services used or consumed in generating the intangible asset. Costs of employee benefits arising from the generation of the intangible asset. Fees to register a legal right Amortization of patents and licenses that are used to generate the intangible asset.

However, the following expenditures are not components of the cost of an internally generated intangible asset:Selling, administrative and other overhead, unless this expenditure can be directly attributed to preparing the asset for use. Clearly identified inefficiencies and initial operating losses incurred before an asset achieves planned performances.Expenditure on training staff to operate the asset.

PAS 38, paragraph 63, explicitly provides that internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall not be recognized as intangible assets

Such items cannot be identified separately from the cost of developing the business as a whole.

Instead, such items are seen as being components of internally generated goodwill. Accordingly, such expenditures shall be expensed when incurred.

RECognition as expense

An expenditure on an intangible item that does not meet the recognition criteria for an intangible asset shall be expensed when incurred.However if this item was acquired in a business combination, this expenditure shall be part of the amount attributed to goodwill at the date of acquisition.Examples of expenditures that are expensed when incurred are:Start up costsTraining costsAdvertising and promotional costsBusiness relocation and reorganization costs

An expenditure on an intangible item that was initially recognized as expense shall not be included as of the cost of intangible asset at a later date.

A prepayment can be recognized as an asset when payment for goods has been made in an advance of the entity obtaining a right to access those goods or when payment for services has been made in advance of the entity receiving those services.

SUBSEQUENT EXPENDITURES

Subsequent expenditure on intangible asset shall be recognized as expense.

However the subsequent expenditure may be capitalized or added to the cost of the intangible asset if the following recognition criteria for an intangible asset are met.It is probable that future economic benefits that are attributable specifically to the subsequent expenditure will flow to the entity.The subsequent expenditure can be measured reliably.

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:PatentCopyrightFranchiseTrademark or brandname Leasehold or lease rightComputer softwareBroadcasting license, airline right and fishing right

unidentifiable intangible assets

An intangible asset is unidentifiable if it cannot be sold, transferred, licensed, rented or exchanged separately.The intangible asset is inherent in a continuing business and can only be identified with the entity as a whole.This unidentifiable intangible asset squarely describes a goodwill.Measurement after recognitionAn entity shall choose either the cost model or revaluation model as its accounting policy.Cost model An intangible asset shall be carried at cost, less any accumulated amortization and any accumulated impairment loss.Revaluation model An intangible asset shall be carried at a revalued amount, less any subsequent amortization and any subsequent accumulated impairment loss. The revalued amount is the fair value at the date or revaluation and is determine by reference to an active market. Thus an intangible asset can only be carried at revalued amount if there is an active market for the asset.THE END(TO BE CONTINUED)

Renelyn C. Gonzales