Definition: An identifiable non-monetary asset without physical substance.
Recognition Criteria
- Asset must be identifiable (separable or arising from contractual/legal rights)
- Control over the asset by the entity
- Future economic benefits are expected
- Cost can be measured reliably
Examples of Intangible Assets
Software, licenses, franchise rights, brands, trademarks, patents, goodwill, customer lists.
Initial Recognition
Debit: Intangible Asset
Credit: Cash / Credit: Gain / Credit: Other Assets (in case of exchange)
Credit: Cash / Credit: Gain / Credit: Other Assets (in case of exchange)
Initial Measurement
Includes all costs necessary to bring the asset to its intended use.
Subsequent Measurement
One of two models can be applied:
- Cost Model: Carrying Amount = Cost - Accumulated Amortization
- Revaluation Model: Used only if an active market exists for determining fair value
Useful Life and Amortization
| Type | Treatment | Example |
|---|---|---|
| Finite Useful Life | Amortized over useful life | 25-year patent: $1,000 ÷ 25 years = $40 annual amortization |
| Indefinite Useful Life | Not amortized, tested for impairment annually | Well-established brand |
How Intangible Assets Arise
- Separate Purchase: (Debit: Intangible Asset / Credit: Cash)
- Exchange of Assets: (Debit: Intangible Asset / Credit: PPE)
- Government Grant: (Debit: Intangible Asset / Credit: Deferred Income)
- Internal Generation (R&D): Most complex aspect
- Business Acquisition (IFRS 3): Recognized at fair value in consolidated FS
Internally Generated Intangible Assets (R&D)
| Phase | Accounting Treatment |
|---|---|
| Research Phase | All expenditures recognized as expense in SOPL |
| Development Phase | Can be capitalized if strict criteria are met (M-A-I-G-T) |
M-A-I-G-T Criteria for Development Capitalization:
- M (Measured Cost): Cost can be measured reliably
- A (Ability to Complete): Technical/administrative capability to complete
- I (Intention to Complete): Intention to complete and use/sell
- G (Generate Cash Flow): Will probably generate future benefits
- T (Technical Help): Adequate technical/financial resources available
Key Problem with IAS 38
The main problem arises from strict restrictions on recognizing internally generated assets.
Example: Company 'Omega' cannot recognize its self-created brand in separate FS, but can recognize an acquired company's brand at fair value in consolidated FS.