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1、Chapter 11 Intangible Assets Prepared by Mark Vallely,Learning objectives,Describe the key characteristics of an intangible asset (p. 518) Explain the criteria relating to the initial recognition of intangible assets and their measurement at point of initial recognition, distinguishing between acqui
2、red and internally generated intangibles (p. 528) Explain how to measure intangibles subsequent to initial recognition, including the principles relating to the amortisation of intangibles (p. 537) Explain the accounting for retirement and disposal of intangible assets (p. 541) Apply the disclosure
3、requirements of AASB 138 (p. 541) Discuss changes to AASB 138 proposed in the AASB Discussion Paper (2008) (p. 546) Discuss innovative suggestions for improving the reporting of intangible assets (p. 548).,Introduction,What is different about intangible assets? Is a different accounting standard req
4、uired? Different recognition and measurement rules? Book value of an entity v. its market value Can accounting provide more useful information? Refer Figure 11.1 Business combination, separate acquisition and internally generated? Should it matter how? AASB 138 Intangible Assets Covers accounting fo
5、r intangible assets not covered elsewhere Inventories, Deferred Tax Assets, Employee Benefits, etc.,The nature of intangible assets,AASB 138 provides the following definition for intangibles: “An identifiable non-monetary asset without physical substance” Three key characteristics of intangibles: Th
6、ey are non-monetary They are identifiable They lack physical substance (i.e. it is not an item of PP&E),The nature of intangible assets Non-monetary in nature,AASB 138 Monetary assets are “money held and assets to be received in fixed or determinable amounts of money” Purpose is to exclude financial
7、 assets E.g. Loans and receivables AASB 139 Financial Instruments: Recognition and Measurement The relevant standard for financial assets,The nature of intangible assets Identifiable,For an intangible to be identifiable one of the following two criteria must be met: It is separable from the entity I
8、t is capable of being sold, rented, licensed, transferred E.g. Customers lists (has a non-contractual basis) It arises from a contractual or some other legal right E.g. Trademarks Franchise agreements Where there is a contractual or legal right, it need not be separable and vice versa,Figure 11.3 pr
9、ovides a list of items that meet the identifiable requirement,Good employee training/morale is not separable,The nature of intangible assets Lack of physical substance,AASB 138 requires the asset be non-physical The Framework (para. 56) specifically states “physical form is not essential” AASB 138 c
10、ontains no discussion of this characteristic its focus is on control If assets are future economic benefits, should we classify assets into tangible and intangible? Does this provide useful information? Lev (2001) identifies some of the unique characteristics of intangible assets,The nature of intan
11、gible assets Lack of physical substance,Lev (2001) Intangible assets Are non-rival, i.e. they have no opportunity costs Have large fixed costs and small marginal costs Are not usually subject to diminishing returns Can be more difficult to manage , operate and protect Property rights can be hard to
12、determine (e.g. employee training) Linking investment to ultimate economic benefits can be difficult Relationship between investment and return is skewed (many failures through to huge successes) General absence of organised markets As a result, intangible assets can be quite difficult to trade,The
13、nature of intangible assets Lack of physical substance,Two key issues for accountants recognition and measurement When they should be recognised? Should one wait for a point of discovery? Does an asset exist when the investment is made? Is there an asset at the point employee training occurs? How th
14、ey should be measured? Where is the market? Can the specific benefits be isolated? Are the property rights over the expected benefits fuzzy?,Why are intangibles important?,Intangibles have been increasing in importance due to: Intensified business competition The advent of information technologies T
15、he above factors have resulted in a fundamental corporate change. Significant increase in: Innovation related intangibles Human Resource related intangibles Organisational intangibles,Figure 11.4 and Figure 11.5 highlight key changes in P/B ratios over time,Identifying intangible assets,Are items th
16、at fail the AASB 138 identifiable test assets? Asset is defined in the Framework as “a resource controlled by the entity as a result of past events and from which economic benefits are expected to flow to the entity” Control usually stems from legal or other rights and can be difficult to establish Example: Highly trained staff do not qualify as intangibles due to the lack of control the entity has over the staff Such benefits may be recognised as part of goodwill (
