HSCS Training & Consulting

CH7- Intangible Assets and Goodwill

IAS 38 Intangible Assets
Def: TA is an identifiable non-monetary asset without physical substance.

2 conditions: Control & future economic benefits think in training cost & market share and customer
loyalty

Exchange of Assets: the exchanged asset is measured at Fair Value.

Internally Generated GW: Never recognized as an asset

Research and Development

Research costs: should be written off as an expense as they incurred.

Development costs : capitalize if it satisfies the criteria:
- Measurement: Expenses can be reliably measured.
- Ability: to use/sell the intangible assets.
- Intention: to complete and use/sell the intangible asset.
- Generate economic benefits through usage / sell ( existence of Market )
- Technical Feasibility of completing the intangible asset.
Internally generated bands, mastheads, publishing titles, customer lists and similar items should not be
recognized as intangible assets.
The cost of the asset is the sum of expenditures incurred from the date when the intangible asset first
meets the recognition criteria .Ex: Page 132
Recognized as expense: all expenses which don't meet the recognition criteria such as: Start up costs
Training cost Advertising costs
Subsequent Measurement: Cost Model OR Revaluation model ( Fair Value )
Amortization: for Assets with Definite Useful Lives.
- Start: when the asset available for use and recorded in profit or Loss.
- Period and method to be reviewed at each year end.
Assets with Indefinite Useful Lives: Not amortized but reviewed at least annually for Impairment..
Disposal / Retirement : difference between CV and net proceeds recorded as gain or loss

IFRS 3 GOODWILL

Purchased Goodwill: is shown in the SOFP as an intangible non-current asset because it has been paid for.
It should be reviewed annually for impairment.
How to be calculated: it is the difference between the purchase consideration and the value of identifiable
net assets.
Negative Goodwill:
- Results from a bargain purchase or from errors in accounting for purchase cost or assets.
- Arises when the cost of purchase is less than the identifiable net assets. It should be recorded
immediately in Profit or Loss.
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CH9- Provisions, Contingent liabilities and Contingent assets

IAS 37 Provisions

Provision: is a liability of uncertain timing or amount.

Three criteria:
- ( R ) Reliable Estimate: a reliable estimate can be made for the amount of the obligation
- ( O ) Obligation: There must be a present legal or constructive obligation at the year end.
- ( T ) Transfer: cash must be expected to transfer out in the future.( probability > 50%)
Measurement: the amount of the provision should be the best estimate of the expenditure required to
settle the obligationExample P 152
Take care:
- if the obligation to be settled in the future you have to record it in Present Value and to unwind the
discount annually ( in profit or loss )..example 2 page 152
- The present value of the obligation to be added to the cost of the assets involved in operations especially
if it relates to environmental cleanup costs and to be depreciated as usual.
Do provision for Onerous Contracts But Don't do provision for Future operating losses. Examples 1.5 P153

Provisions for Restructuring

Costs of restructuring are to be recognized as a provision only when the entity has an obligation to carry
out the restructuring.
To have an obligation: the entity must have a detailed formal plan for restructuring and communicating
this plan with the effected parties.
Note: a decision only is not sufficient as the entity can change its decision easily..Question P155

Contingent Liabilities
It is a present obligation but not recognized because: Not probable cash outflow No reliable
measurement for the amount of cash outflow.
It should only be disclosed in the financial statements.

Contingent Assets
Entities should not recognize contingent assets it could result in the recognition of profits which may
never be realized. But is should only be disclosed ( only if probable )
However, if realization of profit is virtually certain, then the asset is no longer contingent and should be
recognized.
Liability (outflow) Asset (inflow)
Probable Provide Disclose
Possible Disclose Ignore
Remote ( un likely ) Ignore Ignore