‭21‬

‭INTANGIBLE ASSETS (PAS 38)‬ ‭ii.‬ L‭ acks‬ ‭commercial‬ ‭substance‬ ‭-‬ ‭carrying‬ ‭amount‬ ‭of‬ ‭the‬
‭asset given up plus any cash payment.‬
‭It‬‭is‬‭an‬‭identifiable‬‭non‬‭monetary‬‭asset‬‭without‬‭physical‬‭substance.‬‭It‬‭has‬ ‭V.‬ ‭Internally generated intangible asset‬
t‭ hree essential criterias:‬ ‭i.‬ ‭Cost‬ ‭of‬ ‭materials‬ ‭and‬ ‭services‬ ‭used‬ ‭or‬ ‭consumed‬ ‭in‬
‭generating the intangible asset.‬
‭a.‬ ‭Identifiability‬
‭ii.‬ ‭Costs‬‭of‬‭employee‬‭benefits‬‭arising‬‭from‬‭the‬‭generation‬‭of‬
‭i.‬ ‭Separable‬
‭the intangible asset.‬
‭ii.‬ ‭Contractual or other legal rights‬
‭iii.‬ ‭Fees to register a legal right.‬
‭b.‬ ‭Control‬ ‭-‬ ‭the‬ ‭entity‬ ‭must‬ ‭be‬ ‭able‬ ‭to‬ ‭enjoy‬ ‭the‬ ‭future‬ ‭economic‬
‭iv.‬ ‭Amortization‬ ‭of‬ ‭patents‬ ‭and‬ ‭licenses‬ ‭that‬ ‭are‬ ‭used‬ ‭to‬
‭benefits‬ ‭from‬ ‭the‬ ‭asset‬ ‭and‬ ‭prevent‬ ‭others‬ ‭from‬ ‭enjoying‬ ‭the‬
‭generate the intangible asset.‬
‭same benefits.‬
‭c.‬ ‭Future economic benefits‬ ‭ ote:‬ ‭Internally‬ ‭generated‬ ‭brands,‬ ‭mastheads,‬ ‭publishing‬ ‭titles,‬
N
‭i.‬ ‭revenue from the sale of products or services‬ ‭customer‬ ‭lists‬ ‭and‬ ‭items‬ ‭similar‬‭in‬‭substance‬‭shall‬‭not‬‭be‬‭recognized‬‭as‬
‭ii.‬ ‭cost savings‬ ‭intangible assets‬‭. Such expenditures shall be‬‭expensed‬‭when incurred.‬
‭iii.‬ ‭other‬ ‭benefits‬ ‭resulting‬‭from‬‭the‬‭use‬‭of‬‭the‬‭asset‬‭by‬‭the‬
‭entity.‬ ‭RECOGNITION AS EXPENSE‬

‭INITIAL MEASUREMENT: COST‬ ‭a.‬ S‭ tart‬‭up‬‭costs‬‭(organization‬‭costs,‬‭pre-opening‬‭and‬‭pre-operating‬

‭costs)‬
I‭.‬ S‭ eparate acquisition: purchase price + directly attributable cost‬ ‭b.‬ ‭Training costs‬
‭II.‬ ‭Acquisition‬ ‭as‬ ‭part‬ ‭of‬ ‭business‬ ‭combination‬ ‭-‬ ‭fair‬ ‭value‬ ‭on‬ ‭the‬ ‭c.‬ ‭Advertising and promotional costs‬
‭date of acquisition.‬ ‭d.‬ ‭Business relocation or reorganization costs‬
‭III.‬ ‭Acquisition by government grant‬
‭i.‬ ‭Fair value‬ I‭n‬ ‭general,‬ ‭intangible‬ ‭assets‬ ‭shall‬ ‭be‬ ‭recognized‬ ‭as‬ ‭expense.‬ ‭May‬ ‭be‬
‭ii.‬ ‭Nominal‬ ‭amount‬ ‭or‬ ‭zero,‬ ‭plus‬ ‭any‬ ‭expenditure‬ ‭that‬ ‭is‬ ‭capitalized‬ ‭or‬ ‭added‬ ‭to‬ ‭the‬ ‭cost‬ ‭of‬ ‭the‬ ‭intangible‬ ‭asset‬ ‭if‬ ‭the‬ ‭following‬
‭directly‬ ‭attributable‬ ‭to‬ ‭preparing‬ ‭the‬ ‭asset‬ ‭for‬ ‭its‬ ‭recognition criteria for an intangible asset are met:‬
‭intended use.‬
‭I.‬ I‭t‬ ‭is‬‭probable‬‭that‬‭future‬‭economic‬‭benefits‬‭that‬‭are‬‭attributable‬
‭IV.‬ ‭Acquisition by exchange‬
‭specifically to the subsequent expenditure will flow to the entity.‬
‭i.‬ ‭With‬‭commercial‬‭substance‬‭-‬‭fair‬‭value‬‭of‬‭the‬‭asset‬‭given‬
‭II.‬ ‭The subsequent expenditure can be measured reliably.‬
‭up plus any cash payment,‬

‭INTERMEDIATE ACCOUNTING 2 (ACG010)‬

 ‭22‬

‭I.‬ ‭ ost‬ ‭Model‬ ‭-‬ ‭cost‬ ‭less‬ ‭any‬ ‭accumulated‬ ‭amortization‬ ‭and‬
C ‭CLASSIFICATION OF INTANGIBLE ASSET‬
‭impairment‬
‭II.‬ ‭Revaluation Model‬ ‭I.‬ ‭WITH DEFINITE LIFE‬
‭‐‬ ‭only applicable if there is an active market for the asset‬ ‭●‬ ‭Amortized over their useful life.‬
‭‐‬ ‭fair‬ ‭value‬‭less‬‭subsequent‬‭accumulated‬‭amortization‬‭and‬ ‭●‬ ‭Tested‬‭for‬‭impairment‬‭whenever‬‭there‬‭is‬‭an‬‭indication‬‭of‬
‭impairment‬ ‭impairment at the end of the reporting period.‬
‭II.‬ ‭WITH INDEFINITE LIFE‬
‭AMORTIZATION‬ ‭●‬ ‭Not amortized‬
‭●‬ ‭Tested for impairment‬
T‭ he‬ ‭systematic‬ ‭allocation‬ ‭of‬ ‭the‬ ‭amortizable‬ ‭amount‬ ‭of‬ ‭an‬ ‭intangible‬ ‭○‬ ‭at least annually‬
‭asset over the useful life.‬ ‭○‬ ‭and‬ ‭whenever‬ ‭there‬ ‭is‬ ‭an‬ ‭indication‬ ‭that‬ ‭the‬
‭Amortizable Amount = Cost - Residual Value‬ ‭intangible asset may be impaired.‬

‭Residual value‬‭is presumed to be zero, unless‬ ‭GOODWILL‬

‭Developed Goodwill - NOT RECORDED‬
‭●‬ A ‭ ‬‭third‬‭party‬‭is‬‭committed‬‭to‬‭buy‬‭the‬‭intangible‬‭asset‬‭at‬‭the‬‭end‬ ‭Purchased Goodwill (from business combination) - ASSET‬
‭of the useful life.‬
‭●‬ ‭When‬ ‭there‬ ‭is‬ ‭an‬ ‭active‬ ‭market‬ ‭for‬ ‭the‬ ‭intangible‬ ‭asset‬ ‭So‬ ‭that‬ ‭IDENTIFIABLE INTANGIBLE ASSETS‬
‭the‬ ‭expected‬ ‭residual‬ ‭value‬ ‭can‬ ‭be‬ ‭measured‬ ‭and‬ ‭it‬‭is‬‭probable‬
‭ ATENT‬ ‭-‬ ‭An‬ ‭exclusive‬ ‭right‬ ‭granted‬ ‭by‬ ‭the‬ ‭government‬ ‭to‬ ‭an‬ ‭inventor‬
P
‭that‬ ‭there‬‭will‬‭be‬‭a‬‭market‬‭for‬‭the‬‭asset‬‭at‬‭the‬‭end‬‭of‬‭the‬‭useful‬
‭enabling‬ ‭him‬ ‭to‬ ‭control‬ ‭the‬ ‭manufacture,‬ ‭sale‬ ‭or‬‭other‬‭use‬‭of‬‭invention‬
‭life‬
‭for a specified period of time.‬‭(Technology-based‬‭intangible asset)‬
‭Method of Amortization:‬
‭Cost:‬
‭●‬ I‭t‬ ‭shall‬ ‭reflect‬‭the‬‭pattern‬‭in‬‭which‬‭the‬‭future‬‭economic‬‭benefits‬ ‭●‬ I‭NTERNALLY DEVELOPED -‬‭licensing and registration‬‭fees only‬
‭from the asset expected to be consumed by the entity.‬ ‭●‬ ‭PURCHASED PATENTS -‬‭purchase price + directly attributable‬‭costs‬
‭●‬ ‭However,‬ ‭if‬ ‭such‬ ‭pattern‬ ‭cannot‬ ‭be‬ ‭determined‬ ‭reliably,‬ ‭the‬ ‭●‬ ‭Legal‬ ‭cost‬ ‭of‬ ‭successfully‬ ‭prosecuting‬ ‭or‬ ‭defending‬ ‭a‬ ‭patent‬ ‭-‬
‭straight-line method of amortization shall be used.‬ ‭EXPENSED‬

‭ mortization‬‭is‬‭based‬‭on‬‭the‬‭useful‬‭life‬‭or‬‭legal‬‭life‬‭(20‬‭years),‬‭whichever‬
A
‭is‬‭shorter‬‭.‬

‭INTERMEDIATE ACCOUNTING 2 (ACG010)‬

 ‭23‬

T‭ RADEMARK‬‭-‬‭An‬‭exclusive‬‭right‬‭granted‬‭by‬‭the‬‭government‬‭that‬‭permits‬ ‭ OPYRIGHT‬ ‭-‬ ‭Exclusive‬ ‭right‬ ‭granted‬ ‭by‬ ‭the‬ ‭government‬ ‭to‬ ‭the‬ ‭author,‬
C
‭the‬ ‭use‬ ‭Of‬ ‭distinctive‬ ‭symbols,‬ ‭labels,‬ ‭and‬ ‭designs‬ ‭associated‬ ‭with‬ ‭the‬ ‭composer,‬ ‭or‬ ‭artist‬ ‭enabling‬ ‭the‬ ‭grantee‬ ‭to‬ ‭publish,‬ ‭sell‬ ‭or‬ ‭otherwise‬
‭product or the organization.‬‭(Market related intangible‬‭asset)‬ ‭benefit‬ ‭from‬ ‭literary,‬ ‭musical‬ ‭or‬ ‭artistic‬ ‭work.‬‭(Artistic‬‭related‬‭intangible‬
‭asset)‬
‭Cost:‬
‭●‬ I‭NTERNALLY‬ ‭DEVELOPED‬ ‭-‬‭licensing‬‭and‬‭registration‬‭fees‬‭only‬‭for‬ ‭‬ C
● ‭ ost‬‭= production cost + fees to obtain the right‬
‭developed trademarks‬ ‭●‬ ‭Legal life‬‭= lifetime of author plus 50 years after‬‭death‬
‭●‬ ‭PURCHASED‬ ‭TRADEMARK‬ ‭-‬ ‭purchase‬‭price‬‭+‬‭directly‬‭attributable‬ ‭●‬ ‭Amortization:‬
‭costs‬ ‭○‬ ‭Amortized over the useful life‬
‭●‬ ‭Legal‬‭cost‬‭of‬‭successfully‬‭prosecuting‬‭or‬‭defending‬‭a‬‭trademark‬‭-‬ ‭○‬ ‭Usually written off against the revenue of first printing‬
‭EXPENSED‬
‭CUSTOMER LIST‬
T‭ he‬ ‭legal‬ ‭life‬ ‭of‬ ‭a‬ ‭trademark‬ ‭is‬ ‭10‬ ‭years‬ ‭before‬ ‭however‬ ‭it‬ ‭may‬ ‭be‬
‭renewed‬ ‭for‬ ‭an‬ ‭additional‬ ‭10‬ ‭year‬ ‭period‬ ‭for‬ ‭an‬ ‭unlimited‬ ‭number‬ ‭of‬ ‭ ‬ I‭nternally generated customer lists = not recognized‬
●
‭times.‬ ‭Therefore‬ ‭the‬ ‭legal‬ ‭life‬ ‭of‬ ‭a‬ ‭trademark‬ ‭is‬ ‭indefinite‬ ‭and‬ ‭is‬ ‭not‬ ‭●‬ ‭Acquired‬‭customer‬‭list‬‭=‬‭may‬‭be‬‭recognized‬‭as‬‭an‬‭intangible‬‭asset‬
‭subject to amortization but instead tested for impairment.‬ ‭and amortized over the useful life.‬

F‭ RANCHISE‬ ‭-‬ ‭Under‬ ‭a‬ ‭franchise‬ ‭agreement,‬ ‭one‬ ‭party‬ ‭called‬ ‭the‬ ‭WEBSITE DEVELOPMENT COST‬
‭franchisor‬ ‭grants‬ ‭certain‬ ‭rights‬ ‭to‬ ‭another‬ ‭party‬ ‭called‬ ‭the‬ ‭franchisee‬ ‭‬ C
● ‭ ost of website developed for promoting or advertising an‬
‭(Contract-based intangible asset)‬ ‭●‬ ‭entity's products = Expensed‬
‭Cost:‬
‭RESEARCH AND DEVELOPMENT COSTS‬
‭●‬ ‭Initial franchise fee - asset‬
‭●‬ ‭Periodic franchise fee - expensed‬ T‭ o‬ ‭assess‬ ‭whether‬ ‭an‬ ‭internally‬ ‭generated‬ ‭intangible‬ ‭asset‬ ‭meets‬ ‭the‬
‭Amortization:‬ ‭criteria‬ ‭for‬ ‭recognition,‬ ‭an‬ ‭entity‬ ‭classifies‬ ‭the‬ ‭generation‬ ‭of‬ ‭the‬ ‭asset‬
‭●‬ ‭If‬ ‭franchise‬ ‭granted‬ ‭under‬ ‭a‬ ‭definite‬ ‭period‬‭,‬ ‭a‭m
‬ ortized‬‭over‬‭the‬ ‭into:‬
‭useful life or definite period. whichever is shorter.‬
‭●‬ ‭If‬ ‭franchise‬ ‭is‬ ‭granted‬ ‭under‬ ‭an‬ ‭indefinite‬ ‭period,‬ ‭tested‬ ‭for‬ ‭ .‬ A
1 ‭ research phase‬
‭impairment only.‬ ‭2.‬ ‭A development phase‬

‭INTERMEDIATE ACCOUNTING 2 (ACG010)‬

 ‭24‬

I‭f‬‭an‬‭entity‬‭cannot‬‭distinguish‬‭the‬‭research‬‭phase‬‭from‬‭the‬‭development‬ ‭d.‬ H
‭ ow‬‭the‬‭intangible‬‭asset‬‭will‬‭generate‬‭probable‬‭future‬‭economic‬
‭phase‬‭of‬‭an‬‭internal‬‭project‬‭to‬‭create‬‭an‬‭intangible‬‭asset,‬‭the‬‭entity‬‭treats‬ ‭benefits‬‭.‬
‭the‬ ‭expenditure‬ ‭on‬ ‭that‬ ‭project‬ ‭as‬ ‭if‬ ‭it‬ ‭were‬ ‭incurred‬ ‭in‬ ‭the‬ ‭research‬
‭phase only.‬ ‭e.‬ T‭ he‬ ‭availability‬ ‭of‬ ‭adequate‬ ‭technical,‬ ‭financial‬ ‭and‬ ‭other‬
‭resources‬ ‭to‬ ‭complete‬ ‭the‬ ‭development‬ ‭and‬ ‭to‬ ‭use‬ ‭or‬ ‭sell‬ ‭the‬
‭RESEARCH PHASE‬ ‭intangible asset.‬

I‭n‬‭the‬‭research‬‭phase‬‭of‬‭an‬‭internal‬‭project,‬‭an‬‭entity‬‭cannot‬‭demonstrate‬ ‭f.‬ I‭ts‬‭ability‬‭to‬‭measure‬‭reliably‬‭the‬‭expenditure‬‭attributable‬‭to‬‭the‬

‭that‬‭an‬‭intangible‬‭asset‬‭exists‬‭that‬‭will‬‭generate‬‭probable‬‭future‬‭economic‬ ‭intangible asset during its development.‬
‭benefits. Therefore:‬
‭ &D‬ ‭Costs‬ ‭(materials,‬ ‭equipment,‬ ‭intangible‬ ‭assets)‬ ‭which‬ ‭have‬
R
‭●‬ N‭ o‬ ‭intangible‬ ‭asset‬ ‭arising‬ ‭from‬ ‭research‬ ‭(or‬ ‭from‬ ‭the‬‭research‬ ‭alternative‬ ‭future‬ ‭use‬ ‭-‬ ‭can‬ ‭be‬ ‭capitalized.‬ ‭Subsequently,‬ ‭the‬ ‭following‬
‭phase of an internal project) shall be recognized.‬ ‭shall be charged to R&D expense:‬

‭●‬ E‭ xpenditure‬‭on‬‭research‬‭(or‬‭on‬‭the‬‭research‬‭phase‬‭of‬‭an‬‭internal‬ a‭ .‬ C ‭ ost of materials used‬

‭project) shall be recognized as an‬‭expense‬‭when it‬‭is incurred.‬ ‭b.‬ ‭Depreciation of equipment used in R&D‬
‭c.‬ ‭Amortization of intangible asset used in R&D‬
‭DEVELOPMENT PHASE‬
‭ &D‬ ‭activities‬ ‭typically‬ ‭occur‬ ‭prior‬ ‭to‬ ‭the‬ ‭beginning‬ ‭of‬ ‭commercial‬
R
‭ evelopment‬ ‭cost‬ ‭may‬ ‭or‬ ‭may‬ ‭not‬ ‭be‬‭recognized‬‭as‬‭an‬‭intangible‬‭asset‬
D ‭production‬ ‭and‬ ‭distribution‬ ‭of‬ ‭product‬ ‭or‬ ‭process.‬ ‭Commercial‬
‭depending on a‬‭very strict criteria‬‭.‬ ‭Production activities do not result to R&D cost.‬

‭ n‬ ‭intangible‬ ‭asset‬ ‭arising‬ ‭from‬‭development‬‭(or‬‭from‬‭the‬‭development‬

A ‭ osts‬ ‭incurred‬ ‭in‬ ‭creating‬‭a‬‭computer‬‭software‬‭product‬‭shall‬‭be‬‭charged‬
C
‭phase‬ ‭of‬ ‭an‬ ‭internal‬ ‭project)‬‭shall‬‭be‬‭recognized‬‭if,‬‭and‬‭only‬‭if,‬‭an‬‭entity‬ ‭to‬ ‭expense‬ ‭when‬ ‭incurred‬ ‭until‬ ‭a‬ ‭technical‬ ‭feasibility‬ ‭has‬ ‭been‬
‭can demonstrate‬‭all‬‭of the following:‬ ‭established for the product‬‭.‬

‭a.‬ T‭ he‬‭technical‬‭feasibility‬‭of‬‭completing‬‭the‬‭intangible‬‭asset‬‭so‬‭that‬ ‭ fter‬‭technological‬‭feasibility‬‭has‬‭been‬‭established,‬‭capitalizable‬‭software‬

A
‭it will be available for use or sale.‬ ‭costs‬ ‭include‬ ‭the‬ ‭cost‬ ‭of‬‭coding‬‭and‬‭testing‬‭and‬‭the‬‭cost‬‭to‬‭produce‬‭the‬
‭product masters.‬
‭b.‬ ‭Its‬‭intention to complete‬‭the intangible asset and‬‭use or sell it.‬
T‭ he‬‭cost‬‭to‬‭actually‬‭produce‬‭the‬‭software‬‭from‬‭masters‬‭and‬‭package‬‭the‬
‭c.‬ ‭Its‬‭ability to use or sell‬‭the intangible asset.‬ ‭software for sale = shall be charged as‬‭inventory‬

‭INTERMEDIATE ACCOUNTING 2 (ACG010)‬

 ‭25‬

‭Amortization:‬

‭●‬ s‭ hall‬‭reflect‬‭the‬‭pattern‬‭in‬‭which‬‭the‬‭future‬‭economic‬‭benefits‬‭are‬
‭expected to be consumed by the entity.‬
‭●‬ ‭If‬ ‭such‬ ‭a‬ ‭pattern‬ ‭cannot‬‭be‬‭determined‬‭reliably,‬‭the‬‭straight‬‭line‬
‭method is used.‬

‭IF the software is an‬

‭●‬ i‭ntegral‬‭part‬‭of‬‭the‬‭hardware‬‭=‬‭shall‬‭be‬‭included‬‭in‬‭hardware‬‭cost‬
‭(PPE).‬
‭●‬ ‭NOT‬ ‭integral‬ ‭part‬ ‭of‬ ‭the‬ ‭hardware‬ ‭=‬ ‭shall‬ ‭be‬ ‭classified‬ ‭as‬
‭intangible asset‬

‭INTERMEDIATE ACCOUNTING 2 (ACG010)‬