Prepared by Nitin Poojary

1
Prepared by Nitin S Poojary
 Liability Assets

 Present Obligation  Resource controlled by

 Arising of past event
entity
 Result in an outflow of resources
embodying economic benefit  As a result of past
Equity events
 Future economic
 Residual interest in the assets
after deducting all its liabilities. benefits are expected to
flow to the entity
 Income Expenses

 Increase in economic  Decrease in economic

benefits benefits
 In the form of inflows or  In the form of outflows
enhancements of assets or depletions of assets
OR OR
 Decrease in liabilities  Incurrence of liabilities
resulting to increase in resulting to decrease in
equity equity.
Agenda
 Objective and Scope

 Key Definitions

 Recognition and Measurement

 Disclosures

 Ind AS v/s AS
 The objective of IND AS 38 is to prescribe the
accounting treatment for intangible assets that are
not dealt with specifically in another IND AS.
 The Standard requires an entity to recognise an
intangible asset if, and only if, certain criteria are
met.
 The Standard also specifies how to measure the
carrying amount of intangible assets and requires
certain disclosures regarding intangible assets.
 IND AS 38 applies to all intangible assets other than:
 Financial assets
 Exploration and evaluation assets (extractive industries)
 Expenditure on the development and extraction of minerals,
oil, natural gas, and similar resources
 Intangible assets arising from insurance contracts issued by
insurance companies
 Intangible assets covered by another IND AS, such as:
 Intangibles held for sale
 Deferred tax assets
 Lease assets
 Assets arising from employee benefits plan
 Goodwill acquired under business combination.
Agenda
 Objective and Scope

 Key Definitions

 Recognition and Measurement

 Disclosures

 Ind AS v/s AS
 Asset  Intangible Asset
 A resource controlled by the
entity as a result of past events,  An identifiable non
 From which future economic monetary asset
benefits are expected to flow to without physical
the entity
substance

Difference from existing AS

The existing standard defines an intangible asset as an identifiable
non-monetary asset without physical substance held for use in the
production or supply of goods or services, for rental to others, or
for administrative purposes whereas in Ind AS 38, the requirement
for the asset to be held for use in the production or supply of goods
or services, for rental to others, or for administrative purposes has
been removed from the definition of an intangible asset.
 Arises from
contractual or
Exchange
other legal rights
transactions for Power to
the same or obtain future
economic
Identifiable similar item benefits
(= separable)
Legal rights
Is that are
separable enforceable
in a court of
law
Other
is separable, i.e. is capable of being
separated or divided from the entity and sold,
transferred, licensed, rented or exchanged,
either individually or together with a related
contract, identifiable asset or liability, Control
Regardless of whether the entity intends
to do so.
 Not necessarily .
 If separable, that means the asset is capable of being
rented, sold or exchanged, independent of other
assets . So identity is easily established.
 Even if not separable , a legal right to use makes it
identifiable .

The existing standard does not define ‘identifiability’, but states

that an intangible asset could be distinguished clearly from
goodwill if the asset was separable, but that separability was not
a necessary condition for identifiability.
 The future economic benefits flowing from an
intangible asset may include revenue from the sale
of products or services, cost savings, or other
benefits resulting from the use of the asset by the
entity.

 It is not necessary that future economic benefit has

to accrue through income generation alone. It could
be from cost saving too. Hence subject to
compliance of other conditions, capitalization is
possible.
Agenda
 Objective and Scope

 Key Definitions

 Recognition and Measurement

 Disclosures

 Ind AS v/s AS
 Recognition criteria. IND AS 38 requires an entity to recognise an
intangible asset, whether purchased or self-created (at cost) if, and
only if:
a. It is probable that the future economic benefits that are attributable to the
asset will flow to the entity; and
b. The cost of the asset can be measured reliably.
 An entity shall assess the probability of expected future economic
benefits using reasonable and supportable assumptions that
represent management’s best estimate of the set of economic
conditions that will exist over the useful life of the asset.
 Separate acquisition
 The probability criterion (a) is always considered to be satisfied.
The reliable measurement criterion (b) is usually satisfied.
 If an intangible item does not meet both the definition of and the criteria for recognition as an intangible asset, IND AS 38
requires the expenditure on this item to be recognised as an expense when it is incurred.
 Acquisition in a Internally
Separately
business generated
acquired
combination intangibles

Acquisition Expenditure
Cost equals
Cost incurred
fair value
in development
phase

Purchase price + import duties +
non-refundable purchase taxes -
trade discounts -rebates
Directly attributable expenditure on
preparing the asset for its intended use
e.g., employee benefits, professional fees,
function testing

Separately Purchased
Cost includes
 There is a presumption that the fair value (and
therefore the cost) of an intangible asset acquired in
a business combination can be measured reliably.
 An expenditure (included in the cost of acquisition)
on an intangible item that does not meet both the
definition of and recognition criteria for an
intangible asset should form part of the amount
attributed to the goodwill recognised at the
acquisition date.
 Charge all research cost to expense.
 Development costs are capitalised when entity able to demonstrate :
 Technical feasibility
 Intention to complete the intangible asset and use or sell it
 Ability to use or sell the intangible asset
 How the intangible asset will generate probable future economic benefits
 Adequate technical, financial and other resources to complete the
development
 Ability to measure the expenditure attributable to the intangible asset

 If an entity cannot distinguish the research phase of an internal project to create

an intangible asset from the development phase, the entity treats the expenditure
for that project as if it were incurred in the research phase only.
 Cost Includes

Direct costs Indirect costs

•Costs of materials and services
•Costs of employee benefits
•Fees to register a legal right
•Amortisation of patents and licences
• Overheads to the extent necessary
to generate the asset and can be
allocated on a reasonable and
consistent basis
•Borrowing costs in certain cases

 Costs not to recognise

 Selling, administrative and other general overhead expenditure unless it
can be directly attributed to preparing the asset for use
 Inefficiencies and initial operating losses
 Expenditure on training staff to operate the asset

COST ALREADY EXPENSED ARE SUNK COST HENCE NEVER

RECOGNISED
 Cost that do not meet the recognition criteria (including
not meeting the definition of an intangible asset),e.g.
 Internally generated goodwill
 Internally generated brands, mastheads, publishing
titles, customer list & items “similar in substance”
 Research
 Start-up costs (establishment, pre-opening and pre-
operating costs)
 Training
 Advertising and promotional activities
 Relocating and re-organising (restructuring)
 Subsequent expenditure is capitalised when the item
meets
 Definition of an intangible asset
 General recognition criteria for intangible assets
 Recognition of subsequent expenditure will be rare
 Expense subsequent expenditure on brands,
mastheads, publishing titles, customers lists and
items similar in substance
 Measurement
1. Active Market
2. Reporting period

Subsequent
Initial Measurement
measurement

Recognise at cost Cost Model Revaluation Model

Revaluation
Cost Re-valued amt model not
permitted
(-)amortisation (-)amortisation in current AS
(-)Impairment (-)Impairment
 Revaluation

Decrease in carrying
Increase in amount
carrying amount

Recognise to P&L Recognise to Other Comprehensive

Income
(To the extent of previously
(To the extent of previously recognised Profit
recognised loss)

Recognise to Other
Comprehensive Income Recognise to P&L
(Remaining increased value) (Remaining decreased
value)
Finite life Indefinite
life

Asset amortised No amortisation

Impairment test
Impairment if annually or When
required indication of
impairment

Indefinite does
not mean infinite
 Present value of Intangible asset with finite useful
life is assumed to be zero unless
 Commitment by third party to purchase the asset at the
end of its useful life.
 Their is an active market for the asset-
 Residual value can be determined
 Such market will exist at the end of the asset’s useful life.
 An asset is derecognised:
 On disposal (e.g., sale or finance lease); or
 When no future economic benefits are expected from its use or disposal
 Recognise the consideration received at Fair value
 Any gain or loss on de recognition – Recognise to P&L account
 Amortisation not to stop unless when asset is no longer used unless :
 It is fully depreciated or
 Classified as held for sale
Agenda
 Objective and Scope

 Key Definitions

 Recognition and Measurement

 Disclosures

 Ind AS v/s AS
 For each class of intangible asset, disclose: [IAS 38.118 and 38.122]
 useful life or amortisation rate
 Amortisation method
 Gross carrying amount
 Accumulated amortisation and impairment losses
 Line items in the income statement in which amortisation is included
 Basis for determining that an intangible has an indefinite life
 Description and carrying amount of individually material intangible
assets
 Certain special disclosures about intangible assets acquired by way of
government grants
 Information about intangible assets whose title is restricted
 Contractual commitments to acquire intangible assets
 Reconciliation of the carrying amount at the
beginning and the end of the period showing:
 Additions (business combinations separately)
 Assets held for sale
 Retirements and other disposals
 Revaluations
 Impairments
 Reversals of impairments
 Amortisation
 Foreign exchange differences
 Other changes
Agenda
 Objective and Scope

 Key Definitions

 Recognition and Measurement

 Disclosures

 Ind AS v/s AS
Sr. Ind AS 38 AS 26
No
1 Does not include any such exclusion specifically Does not apply to accounting issues of specialised
as these are covered by other accounting nature also arise in respect of accounting for discount
standards. or premium relating to borrowings and ancillary costs
incurred in connection with the arrangement of
borrowings, share issue expenses and discount allowed
on the issue of shares.
2 The requirement for the asset to be held for use Defines an intangible asset as an identifiable non-
in the production or supply of goods or services, monetary asset without physical substance held for use
for rental to others, or for administrative in the production or supply of goods or services, for
purposes has been removed from the definition rental to others, or for administrative purposes.
of an intangible asset.
3 Provides detailed guidance in respect of Does not define ‘identifiability’, but states that an
identifiability. intangible asset could be distinguished clearly from
goodwill if the asset was separable, but that
separability was not a necessary condition for
identifiability.
Sr. Ind AS 38 AS 26
No

4 In the case of separately acquired intangibles, No such provision

the criterion of probable inflow of expected
future economic benefits is always
considered satisfied, even if there is uncertainty
about the timing or the amount of the inflow.

5 If payment for an intangible asset is deferred No such provision

beyond normal credit terms, the difference
between this amount and the total payments is
recognised as interest expense over the period of
credit unless it is capitalised as per Ind AS 23.

6 Deals in detail in respect of intangible assets Refers only to intangible assets acquired in an
acquired in a business combination. amalgamation in the nature of purchase and does not
refer to business combinations as a whole.
Sr. Ind AS 38
No
7 Gives guidance for the treatment of such
expenditure
8 Requires that if an intangible asset is acquired
in exchange of a non-monetary asset, it should
be recognised at the fair value of the asset
given up unless (a) the exchange transaction
lacks commercial substance or (b) the fair
value of neither the asset received nor the asset
given up is reliably measurable
9 No Such requirement
AS 26
Silent regarding the treatment of subsequent
expenditure on an in-process research and
development project acquired in a business
combination
Requires the principles of existing AS 10 to be
followed which requires that when an asset is
acquired in exchange for another asset, its cost is
usually determined by reference to the fair market
value of the consideration given. It may be
appropriate to consider also the fair market value of
the asset acquired if this is more clearly evident. An
alternative accounting treatment to record the asset
acquired at the net book value of the asset given up; in
each case an adjustment is made for any balancing
receipt or payment of cash or other consideration also.
Also requires annual impairment testing of asset not
yet available for use.
Sr. Ind AS 38
No
10 When intangible assets are acquired free
of charge or for nominal consideration
by way of government grant, an entity
should, in accordance with Ind AS 20,
record both the grant and the intangible
asset at fair value
11 The rebuttable presumption is not there
in Ind AS 38. Ind AS 38 recognizes that
the useful life of an intangible asset can
even be indefinite subject to fulfilment of
certain conditions, in which case it
should not be amortised but should be
tested for impairment.
12 Guidance is available on cessation of There is no such guidance.
capitalisation of expenditure, de-
recognition of a part of an intangible
asset and useful life of a reacquired right
in a business combination.
AS 26
Intangible assets acquired free of charge or for
nominal consideration by way of government
grant is recognised at nominal value or at
acquisition cost, as appropriate plus any
expenditure that is attributable to making the
asset ready for intended use.
Is based on the assumption that the useful life
of an intangible asset is always finite, and
includes a rebuttable presumption that the
useful life cannot exceed ten years from the
date the asset is available for use
Sr. Ind AS 38 AS 26
No
13 Permits an entity to choose either Revaluation model is not permitted.
the cost model or the revaluation
model as its accounting policy.
14 Acknowledges that the useful life of No such provision
an intangible asset arising from
contractual or legal rights may be
shorter than the legal life.
15 Change in the method of Change in the method of amortisation is a
amortisation is a change in change in accounting policy.
accounting estimate.
16 The residual value is reviewed at Specifically requires that the residual
least at each financial year-end. If it value is not subsequently increased for
increases to an amount equal to or changes in prices or value.
greater than the asset’s carrying
amount, amortisation charge is zero
unless the residual value
subsequently decreases to an amount
Agenda
 Objective and Scope

 Key Definitions

 Recognition and Measurement

 Disclosures

 Ind AS v/s AS