A Presentation on Intangible Assets-IAS 38 Prepared by a few students of Dept. of Accounting & Info. Systems, Jahangirnagar University, Savar, Dhaka

1. IAS-38
INTANGIBLE ASSETS

2. Presented By
1. Md. Abdullah Al Masum---------------------------------
749
2. Ruhul Amin--------------------------------------------
---------759
3. Md. Kabir Hasan---------------------------------------
------768
4. M.K. Jahid Shuvo---------------------------------------
-----769
5. Saidur Rahman-----------------------------------------
-------770

3. Contents
 Definition of Intangible assets
 Objective of IAS 38
 Scope of IAS 38
 Accounting Treatments
 Useful life of Intangible assets
 Amortization of Intangible assets
 Impairment of Intangible assets
 A practical example- Patent

4. Intangible Assets -
Having future economic benefits,
No physical substance,
With high degree of uncertainty concerning the future benefit
 Arises from contractual and other legal rights
 Clearly distinguishable and controllable

5. Common Types of Intangibles
Intangibles
Patent
Copyrights
Franchises
Start-up
costs
Trademarks
Goodwill

6. Objectives IAS 38
Allow entities to Identify and Recognize separate value
of intangible assets
Enables users to Assess more Accurately the value &
makeup of assets of the entity

7. Scope of IAS 38
Definition of intangible asset
Recognition & De-recognition as an asset
Determine carrying amount
Determination and treatment of impairment losses
Disclosure requirement

8. Accounting Treatments
Recognition
Measurement-
1. Initial Measurement
2. Subsequent measurement
Presentation and Disclosures

9. Recognition
An asset can recognize as an asset if ;
 Flow of probable future economic benefit into the entity
 Cost can be measured reliably

10. Cost of Intangible Asset
Cost comprises:
 Purchase price
 Any directly attributable costs of preparing asset for
intended use.
 cost of getting asset to working condition
 legal fees etc.

11. Internally Generated Intangible Assets
Two Phases:
Research Phase: No intangible assets arising from the research phase
may be recognized.
there is insufficient certainty that it will generate future
economic benefits
Development Phase: Intangible assets arising from the development
phase are recognized when the entity meets those two recognition
criteria.

12. Costs cannot be capitalized…
The costs relating to many internally generated intangible
items cannot be capitalized and are expensed as incurred-
Research cost
Start up cost
Training cost
Advertising & Promotion etc.

13. Measurement
2types of measurement-
Initial measurement
Subsequent measurement

14. Initial measurement
On Initial Recognition an intangible asset is measured at Cost
 Incase of internal project Research Expenditure and
Development Expenditure should be separated
 Project Research expenditure will be treated as Expense
 Project Development expenditure will be treated at Cost

15. Subsequent measurement
In subsequent measurement 2 Models are used
 Cost Model
 Revaluation Model

16. Cost Model
The carrying amount of an intangible asset is its Cost less
Accumulated Amortization and Impairment Losses
Assets classified as held for sale are shown at the lower of ‘Fair
Value less Costs to sell and carrying amount’

17. Revaluation Model
Assets are carried at fair value at the date of revaluation, less any
subsequent accumulated amortization and less any subsequent
accumulated impairment losses.
The asset value should be reviewed regularly
The revaluation model is only available if an active market exists for
that intangible asset.
Such active markets are expected to be uncommon for intangible
assets.

18. Useful life of Intangible asset
Useful life of an intangible assets can be applied in 2 ways-
Intangible asset with a Finite useful life is amortized on a
systematic basis over the best estimate of its useful life
Intangible asset with an Infinite should be tested for
impairment annually but not amortized

19. Intangibles Assets with Finite lives
 Patents (20 years), copyrights (the life of the creator plus
70 years), franchise and license (the contractual life).
 The costs are subjected to amortization (a process of cost
allocation) over the shorter of the legal or useful life, not
to exceed 40 years.

20. Amortization of Intangibles
The impairment test needed only when events indicate that
the book value may not be recoverable.
Amortization Method: Straight-line method.
Other method can be applied if it is more appropriate than the
S-L method.
Residual value: Usually zero.

21. Journal Entry:
Amortization Expense xxx
Intangible Asset xxx
(or Accumulated Amortization)
Amortization of Intangibles (contd.)

22. Intangibles Assets with Infinite lives
 Trademarks, goodwill, in-process R&D.
 The costs are not subject to amortization.
 Impairment test is required at least annually.

23. Useful life of Intangible asset- Examples

24. Impairment of Intangible Assets
 All principles (IAS 36) apply to impairments of long-lived
assets also apply to intangible assets.
 Thus, when changes in circumstances indicate that the book
value of the intangibles may not be reconcilable (i.e., fair value
of intangible < carrying amount), a write-down should be
performed to recognize the loss.

25. Presentation and Disclosures
This segment includes-
 Specific accounting Policies
 Statement of Comprehensive income and notes
 Statement of Financial Position and notes
 Additional Disclosure

26. Specific accounting Policies
Measurement basis
Amortization method (IAS 36)
Useful lives and amortization rates

27. Statement of Comprehensive income and notes
Amortization charge for each class of asset including the
Line Item
 Total amount of research and development cost recognized
as an Expense

28. Statement of Financial Position and notes
 Book Value less Accumulated Depreciation for each class
of assets
 Comparatives are not required
 Carrying amount of intangible Pledged as Security
 Carrying amount of Intangible whose title is restricted
 Capital commitments for the acquisition of intangible
assets
 Description, carrying amount and remaining amortization
period of any intangible asset

29. Additional Disclosure
 Effective date of revaluation
 Carrying amount of each class of intangibles
 Details of reconciliation & revaluation in some cases
 Any restriction on distribution of surplus

30. Practical Example
As a practical example of intangible asset, now we will
show you some initial recording of Patent

31. Patent - As an Practical Example
Granted by the U.S. Patent and Trademark Office for a
period of 20 years.
 A patent gives the holder the exclusive right to produce,
use and sell a product or process without interference or
infringement from others.

32. Patent - As an Practical Example
Cost of patent: If purchased from an inventor, the cost
will include the purchase price plus any legal fees (to
successfully protect the patent).
In addition, any legal fees occur after the acquisition of a
patent which successfully defend the right of the patent
should also be capitalized.

33. Patent - As an Practical Example
The cost of a patent should be amortized--
Over the legal life
or
the useful life
whichever is shorter

34. Patent - As an Practical Example
Journal Entry
Amortization Expense xxx
Patents
(or Accu. Patent Amortization) xxx
Using straight-line method (partial year should be applied)

35. Patent - As an Practical Example
If events indicate the book value of a patent may not be
recoverable, an impairment test is required.
If a patent becomes worthless, the net value of the patent should
be written off as loss.
If a patent is internally developed, no cost can be capitalized.
Most of the research and development (R&D) costs are expensed.

36. Summary
 Objective and scope of IAS 38
 Key Concepts
 Accounting Treatments Like Recognition, Measurement,
Presentation & Disclosure
 Amortization & Impairment
 Discussion of patents- A Practical Example

37. Thank You…
For Your Concentration

38. If You Have any
Question…