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  • Accounting For Intangible Asset IAS 38

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    MIKIYAS BERHE
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    IAS 38 provides guidance on accounting for intangible assets. Intangible assets are non-physical assets that provide future economic benefits over multiple periods. Examples include goodwill, patents, trademarks, and copyrights. Intangible assets are classified as either indefinite or definite, and are accounted for similarly to other long-term assets by being recorded at cost and amortized over their useful life, with regular impairment reviews. IAS 38 sets out criteria for recognizing, measuring, and disclosing information about intangible assets in financial statements.

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    IAS 38 provides guidance on accounting for intangible assets. Intangible assets are non-physical assets that provide future economic benefits over multiple periods. Examples include goodwill, patents, trademarks, and copyrights. Intangible assets are classified as either indefinite or definite, and are accounted for similarly to other long-term assets by being recorded at cost and amortized over their useful life, with regular impairment reviews. IAS 38 sets out criteria for recognizing, measuring, and disclosing information about intangible assets in financial statements.

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    12 views2 pages

    Accounting For Intangible Asset IAS 38

    Uploaded by

    MIKIYAS BERHE
    IAS 38 provides guidance on accounting for intangible assets. Intangible assets are non-physical assets that provide future economic benefits over multiple periods. Examples include goodwill, patents, trademarks, and copyrights. Intangible assets are classified as either indefinite or definite, and are accounted for similarly to other long-term assets by being recorded at cost and amortized over their useful life, with regular impairment reviews. IAS 38 sets out criteria for recognizing, measuring, and disclosing information about intangible assets in financial statements.

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    Accounting for intangible asset IAS 38

    An intangible asset is a non-physical asset that will be consumed over more than one
    accounting period.  Goodwill, brand recognition and intellectual property, such
    as patents, trademarks, and copyrights, are all intangible assets. Intangible assets exist in
    opposition to tangible assets, which include land, vehicles, equipment, and inventory. The
    accounting for an intangible asset is to record the asset as a long-term asset and amortize the
    asset over its useful life, along with regular impairment reviews. The accounting is essentially
    the same as for other types of fixed assets.

    Additionally, financial assets such as stocks and bonds, which derive their value from
    contractual claims, are considered tangible assets

    An intangible asset can be classified as either indefinite or definite. A company's brand name
    is considered an indefinite intangible asset because it stays with the company for as long as it
    continues operations. An example of a definite intangible asset would be a legal agreement to
    operate under another company's patent, with no plans of extending the agreement. The
    agreement thus has a limited life and is classified as a definite asset.

    While an intangible asset doesn't have the obvious physical value of a factory or equipment, it
    can prove valuable for a firm and be critical to its long-term success or failure

    IAS 38 sets out the criteria for recognizing and measuring intangible assets and requires
    disclosures about them. An intangible asset is an identifiable non-monetary asset without
    physical substance. Such an asset is identifiable when it is separable, or when it arises from
    contractual or other legal rights. Separable assets can be sold, transferred, licensed, etc.
    Examples of intangible assets include computer software, licenses, trademarks, patents, films,
    copyrights and import quotas. Goodwill acquired in a business combination is accounted for in
    accordance with IFRS 3 and is outside the scope of IAS 38. Internally generated goodwill is
    within the scope of IAS 38 but is not recognized as an asset because it is not an identifiable
    resource.

    Expenditure for an intangible item is recognized as an expense, unless the item meets the
    definition of an intangible asset, and:

     it is probable that there will be future economic benefits from the asset; and
     The cost of the asset can be reliably measured.

    The cost of generating an intangible asset internally is often difficult to distinguish from the cost
    of maintaining or enhancing the entity’s operations or goodwill. For this reason, internally
    generated brands, mastheads, publishing titles, customer lists and similar items are not
    recognized as intangible assets. The costs of generating other internally generated intangible
    assets are classified into whether they arise in a research phase or a development phase.
    Research expenditure is recognized as an expense. Development expenditure that meets
    specified criteria is recognized as the cost of an intangible asset.

    Intangible assets are measured initially at cost. After initial recognition, an entity usually
    measures an intangible asset at cost less accumulated amortization. It may choose to measure
    the asset at fair value in rare cases when fair value can be determined by reference to an active
    market.

    An intangible asset with a finite useful life is amortized and is subject to impairment testing. An
    intangible asset with an indefinite useful life is not amortized, but is tested annually for
    impairment. When an intangible asset is disposed of, the gain or loss on disposal is included in
    profit or loss.

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