1. INITIAL MEASUREMENT OF INTANGIBLE ASSETS

Cost of a separately acquired intangible asset comprises:

- Its purchase price, import duties and non-refundable purchase taxes, after deducting trade discounts and rebates; and

- Any directly attributable cost of preparing the assets for its intended use

Examples of costs which should not be included in initial costs of an intangible asset such as:

- Cost of introducing new product or service (including cost of advertising and promotional activities)

- Cost of conducting business in a new location or with a new class of customer (including staff training costs)

- Administration or other general overhead costs.

Recognition of costs in carrying amount of intangible assets ceases when the asset is in the condition necessary for it to be capable of operating in the manner intended by management. Therefore cost of using or redeploying of an intangible asset could not be included in its initial costs. This rule is similar to those applied for tangible asset or inventories.

2. MEASUREMENT FOR DIFFERENT CASES OF ACQUISITION

Acquisition as a part of business combination

In accordance with IFRS 3 – Business combination, if an intangible asset is acquired in a business combination, the cost of intangible asset is its fair value as of the acquisition date. The standard also said that the acquirer shall recognize at the acquisition date, separately from goodwill, an intangible asset of the acquiree, irrespective of whether the asset was previously recognized by the acquiree before the business combination.

Acquisition by way of a government grant

In some cases, an intangible asset may be acquired at free of charge or for a nominal consideration, by way of a government grant. There are 02 possible treatments allowed by IAS 20 – Government Grant in this case:

- Recognize both intangible asset and government grant initially at its fair value

- Recognize the asset initially at a nominal value plus expenditure that directly attributable to bring the asset into condition of intended use.

Internally generated goodwill

According to [IAS 38.48] internally generated goodwill at certain extent can create future economic benefits to the company in different forms, and even such benefits can be much higher than those by physical assets. However, it could not meet definition of intangible asset because it is not an identifiable asset (ie. it is not separable nor does not arise from contractual or legal rights); and its costs cannot be measure reliably.

Internally generated intangible assets

It is sometime difficult to assess whether an internally generated intangible asset qualified for recognition because of followings:

- Identify whether and when there is an identifiable asset that will generate future economic benefits for the company

- Determine costs of the asset reliably. Sometime costs of internally generated intangible asset cannot be distinguished with costs of maintaining or enhancing the entity’s internally generated goodwill or costs of running day-to-day operation.

Therefore to assess whether internally generated intangible asset meet criteria for recognition, the entity classifies the generation of the asset into:

- Research phase

- Development phase

If an entity could not distinguish research phase from development phase of the company’s project to create an intangible asset, the entity then treats all expenditure on that project as it incur for research only.

(i) Research phase

In research stage, the company could not demonstrate possibility of forming an asset that can generate future economic benefits for the company. The probability is therefore really weak in this case and an asset cannot be recognized for this stage.

Examples of research expenditures:

- Activities to obtain new knowledge

- Search for, evaluation and final selection of , application of research findings or other knowledge

- Search for alternative materials, products, processes, services etc.

- Formulation, design and final selection of possible alternative for new or improved product, service, processes etc.

(ii) Development phase

These criteria can be summarized as followings:

- Technical and financial feasibility to complete the asset generation.

- Intention to use or sell the asset to generate future economic benefits for the company.

- Costs can be measured reliably.

Notes: Internally generated brands, masthead, publishing titles, customer lists and similar items shall not be recognized as intangible asset because it is non-identifiable from other assets and it cannot be distinguished from cost of developing the business as whole.

Costs of internally generated intangible asset

Cost of internally generated intangible asset comprises all directly attributable costs necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management. It is sum of directly attributable expenditures from the date when it meets recognition criteria and criteria for development stage.

IAS 38 also prohibit re-capitalize expenditures which was previously recognized in research stage.

References

- IAS 38 – Intangible assets

- Training documents on IAS 38 composed by ACCA Vietnam