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IND AS 38 - Markings

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59 views11 pages

IND AS 38 - Markings

Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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IND AS 38 19.

IIN
NDDA
ASS3
388
IIN
NTTA
ANNG
GIIB
BLLE
EAAS
SSSE
ETTS
S
2Conditions Any D
1. DEFINITIONS It can be separately sold from
Goodlin other assets
ahu Identifiable It arises from a separate legal
If Purthased contract
enerated
Recognised Non-Monetary Asset d
He
ever INTANGIBLE Amounts
cognised ASSET Without Physical
production or supply of
It Substance
goods or services
entificeble
Indcand
metofIdentifiable for rental to others
Held for use in:
e
my for administrative
Trade Relables 5L monetary purposes
Asset
Non Monetary
i) IDENTIFIABLILITY Intangible Assets 101 Asset
 An asset is identifiable if it is either:

a) SEPARABLE (i.e. it is capable of being separated from the entity and sold/ transferred

either individually or together with related contract); OR

b) ARISES FROM CONTRACTUAL or other legal rights.

ii) GUIDANCE ON ASSET THAT INCORPORATES BOTH TANGIBLE AND INTANGIBLE

ELEMENTS SHOULD BE TREATED UNDER IND AS 16 OR IND AS 38

 The entity should assess which element is more significant.

Eg: 1. Software Purchased in a CD – Intangible Asset

2. Computer Machine purchased incorporating software – Tangible Asset

2. RECOGNITION CRITERIA
r
INTANGIBLE
•MEETS THE DEFINITION OF INTANGIBLE ASSET
ASSET
•PROBABLE FUTURE ECONOMIC BENEFITS, AND
RECOGNISED IF
•COSTS CAN BE MEASURED RELIABLY
AND ONLY IF:

#FRwithAK CA Aakash Kandoi


IND AS 38 19.2

3. MEASUREMENT

INITIAL MEASUREMENT

(ALWAYS AT COST) yup god

Components of If assets is If asset is acquired Acquired as a Internally


cost if asset is acquired by way by way of Govt part of Business Generated
PURCHASED of EXCHANGE Grant Combination Intangible Asset

Refer Note As per


Refer Note 3 Refer Note 4 Refer Note 5
1&2

11
00 Hid INDAS 20

same like
same like Ind AS 16
IndAS 6 NOTE 1: COMPONENTS OF COST IF ASSET IS PURCHASED

a. Purchase Price (LESS Trade discounts and Rebates)

b. Non refundable Taxes

c. All Directly Attributable Expenses

 INCLUDES : Employee Costs, Cost of Testing, Professional Fees, etc.

 DOES NOT INCLUDE : Cost of Introducing a new product, Advertising and

Promotional Costs, Staff Training Costs, Administration and Other General

Overheads, Initial Operating Losses.

Coloma yeast
NOTE 2: DEFERRED CONSIDERATION 2.22 2012200
 If payment is deferred beyond normal credit terms, then the cost of PPE will be Cash

Price Equivalent at the Recognition Date.

 The difference between the cash price at recognition date and the total payment is

recognised as interest expense over the credit period.

NOTE 3: EXCHANGE OF ASSETS

1st Pref: FV of Asset Given Up + Cash Paid (if any) Provided the transaction
OR FV of Asset Acquired, DOES NOT Lack
Commercial Substance*
whichever is more clearly evident

3rd Pref: If Fair Value Not Available OR if the Transaction lacks Commercial Substance, then

#FRwithAK CA Aakash Kandoi


IND AS 38 19.3

record at Carrying amount of Asset Given Up + Cash Paid (if any)

*A transaction lacks commercial substance is future cash flows (Risk, timing & Amount) are

NOT expected to change as a result of the transaction. (i.e. Cash flows from New Acquired

asset are going to be same as the Cash flows from the Old Transferred Asset)

Note:

When the fair value of both the asset given up and acquired is mentioned, it is presumed

that both the fair values are equally evident. In such a case, the fair value of the asset given

up is considered as the cost of the asset purchased.

MBeg s NOTE 4: INTANGIBLE ASSET ACQUIRED AS A PART OF BUSINESS COMBINATION


 Cost of Intangible Asset acquired in Business Combination is Fair Value at the Date of
r
Acquisition.

 Intangible Assets acquired in business combination are recognised separately from Goodwill
O
EE irrespective of whether the asset had been recognised by the acquiree (i.e. seller) before
business combination.
leg Customer D B
 If Intangible Assets are not separable from goodwill, then recognise the Intangible asset with

Goodwill. Any excess PCpaid over MetAssetsacquired Glo


 If Intangible Assets are separable, but only together with another related Item, then

Eg recognise the Intangible Asset with the related item. leg logo tagline
(Eg. Two separable intangible assets are identified- a magazine’s publishing title and a

related subscriber database. The fair value of the publishing title cannot be reliably measured

as it cannot be sold without the database. Therefore, the two intangible assets are

recognized as a single asset at combined Fair Value)

NOTE 5: INTERNALLY GENERATED INTANGIBLE ASSET

MBIg

#FRwithAK CA Aakash Kandoi


IND AS 38 19.4

Internally Generated
Intangible Asset

SelfGenerated
Internally Generated
Other Than Goodwill
Goodwill

Research Phase Development Phase


- It is NOT IDENTIFIABLE
(i.e. it is neither separable
nor arises from a legal Original & Planned The phase that converts

contract) Investigation undertaken BUT the results of research


the entity CANNOT into a marketable
-Also, Cost incurred to
demonstrate that an product
internally generate
Intangible Asset Exists
goodwill cannot be Capitalise the cost incurred
measured reliably. All expense incurred in in development phase &
Therefore NOT recognised Research Phase Charge to recognise as an Intangible
as an Intangible Asset P&L Asset - ONLY IF conditions
given below are satisfied.*

a) An intangible asset arising from development phase should be recognised if and only if, an

entity can demonstrate all of the following conditions:

 Technical feasibility of completion of Intangible asset;

 Intention to complete the intangible asset;

 Ability to use or sell the intangible asset;

 How the intangible asset will generate probable future economic benefits.
f
 Availability of adequate resources like technical, financial or others to complete the

development.
Begins
Ability to reliably measure the expenditure during its development.
0 Ability
Thick 2Cand Recogn criteria 2cand completion 2 A's Availability
b) Cost of an internally generated asset to be capitalized

 Starts from the date when development phase begins.

#FRwithAK CA Aakash Kandoi


IND AS 38 19.5

COSTS TO BE CAPITALISED FROM


DEVELOPMENT PHASE

All directly attributable Expenses

Includes Excludes

- Costs of materials & services consumed - Selling, Admin & General OHs

- Employee Cost - Abnormal Loss

- Fees to register a legal right - Initial Operating Loss G


- Amortisation of patents and licences that are - Staff Training Cost
used to generate the intangible asset

c) Other Important points relating to Internally Generated Intangible Asset

For Internally Generated Intangible Assets

Difficult to Distinguish Items that should NOT be Research & Develpoment


between Research Phase & recognised as an Intangible Project Acquired as a part of
Development Phase Asset Business Combination
Ifthey are internallygenerated

- Brands It can be recognised as an


Treat as Research these

f
- Customer Lists Intangible Asset if it meets the
Phase are Definition and it is Identifiable
purchased - Publishing titles
theycan - Mastheads (Also Refer Note below)
berecorded as
costin thatcase
canbe measuredreliably
Note: After Recognising Acquired Research Project, company might incur expenses on the

said research project in 2 phases i.e. Research Phase and Development Phase. Expenditure

incurred by self in the research phase will be trf to P&L.

Rad project PK
Purchase
He self Dev cap
capitalise

#FRwithAK CA Aakash Kandoi


IND AS 38 19.6

SUBSEQUENT
MEASUREMENT

COST Model REVALUATION Model

Fair Value on Date of Revaluation


Cost
Less: Subsequent Accumulated Amortization
Less: Accumulated Amortization
Less: Subsequent Accumulated Impairment
Less: Accumulated Impairment Losses
Losses

NOTE: Fair Value must be determined by reference to an active market. If active market is

not available, then revaluation model cannot be used and the asset will be carried at Cost

Model

REVALUATION MODEL

ii) Treatment of
i) Frequency iii) Revaluation to be iv) Treatment v) Transfer of
Accumulated
of applied to entire class of Revaluation Revaluation Surplus to
Amortization on
revaluation of Assets Gain & Loss Retained Earnings
date of Revaluation

i) FREQUENCY OF REVALUATION

If significant and volatile


Annually
Frequency of Changes
Revaluation
If insignificant Changes Every 3-5 Years

ii) TREATMENT OF ACCUMULATED AMORTIZATION ON DATE OF REVALUATION

 When an intangible asset is revalued, the carrying amount of that asset is adjusted to the

revalued amount. At the date of the revaluation, the Intangible Asset is treated in one of

the following ways:

#FRwithAK CA Aakash Kandoi


IND AS 38 19.7

Treatment

Method 1 - Acc. Method 2 - Acc. Amortization


Amortization Eliminated NOT Eliminated

Steps:
1. Find % Gain/Loss
Journal Entry
= Reval G/L ÷ Carrying Amt
1. Acc. Amortization A/c Dr.
2. Increase Acc Amortization and
To Asset A/c
Gross Block of Asset by above %
2. Asset A/c Dr.
3. Journal Entry
To Reval Gain A/c
Asset A/c Dr.
To Acc Amortization A/c
To Reval Gain A/c

iii) REVALUATION TO BE APPLIED TO ENTIRE CLASS OF ASSETS

 If an Intangible Asset is revalued, the entire class to which that asset belongs shall be

revalued.

 Exception: If no active market exists for an Intangible Asset in a class, then that particular

asset will be carried at Cost Model and remaining Intangible Assets in that class can be

carried at Revaluation Model

iv) TREATMENT OF REVALUATION GAIN & LOSS

#FRwithAK CA Aakash Kandoi


IND AS 38 19.8

TREATMENT OF
REVALUATION GAIN &
LOSS

First Time Subsequent


Revaluation Revaluation

Revaluation Revaluation Revaluation Revaluation


Gain Loss Gain Loss

Whether the asset had Whether the asset had


OCI P&L
Gain or Loss in Gain or Loss in Previous
Previous Years? Years?

Previous Previous Previous Previous


Gain Loss Gain Loss

Transfer Current Transfer


Transfer
Gain to P&L to Transfer Current Current Loss
Current
the extent it Loss to OCI to the to P&L
Gain to OCI
reverses extent it reverses
Previously Previously
recognised Losses recognised Gains
in P&L. in OCI.

Balance of Gain Balance of Loss (if


(if any) - Trf to any) - Trf to P&L
OCI

v) TRANSFER OF REVALUATION SURPLUS TO RETAINED EARNINGS

Transfer of Balance in Revaluation


Surplus to Retained Earnings

When Intangible Asset is


Excess Amortization
Disposed/Derecognised

Excess Amortization = Amortization on


Transfer full balance of
revalued amount (-) Amortization on Carrying
revaluation surplus to
Amount if the asset was NOT revalued
Retained Earnings
Such Excess Amortization CAN be transfered to
(This is NOT optional)
RE (This is optional)

#FRwithAK CA Aakash Kandoi


IND AS 38 19.9

Caution: The above Transfers will NOT take place through P&L

4. SUBSEQUENT COST INCURRED

 Most subsequent expenditure do not result in excess FEBs. Therefore, such expenditures are

charged to P&L

5. EXPENDITURE INCURRED BUT NO INTANGIBLE ASSET

 The following types of expenditure should always be recognised as an expense:

 Expenditure on research (except when it is acquired as part of a business combination);

 Start-up costs

 Expenditure on training activities;

 Expenditure on advertising and promotional activities

 Expenditure on relocating or reorganising part or all of an entity.

6. AMORTIZATION

 It is systematic allocation of AMORTIZABLE AMOUNT to P&L over its Useful Life.

AMORTIZATION

Amortization Amortization Amortizable


Method Period Amount

1. SLM Commencement Cessation Cost


2. WDV (-)
3. Units of Production Residual
When asset is Earlier of :
Method Value
i) Asset classified as Held for
AVAILABLE
sale - as per IND AS 105
FOR USE
Method based on Revenue OR
ii)Derecognised (Scrapped or
Sold)
In Most Cases In Rare Cases Also refer Note below

Inappropriate Can be applied only if revenue


is the limiting factor.
Eg. Right to operate toll upto
Specific Revenue

#FRwithAK CA Aakash Kandoi


IND AS 38 19.10

Note:

1. Amortization of an intangible asset DOES NOT cease when the intangible asset is idle or no

longer used, unless the asset has been fully amortized or is classified as held for sale.

2. Intangible asset with indefinite useful life is not amortized but is tested for impairment

annually (as per IND AS 36).

7. RESIDUAL VALUE

 Residual Value of an Intangible Asset in most cases is always assumed to be ZERO UNLESS:

a) There is a commitment by a third party to purchase the asset at the end of its useful

life; OR

b) There is an active market available for the Intangible Asset & it is probable that such

market will exist at the end of useful life of the asset.

 If residual value exceeds carrying amount, then amortization value shall be zero.

8. USEFUL LIFE

Should NOT be amortized


Infinite Useful Life but tested for Impairment
Annually
Useful life of an Intangible
Asset

Finite Useful Life Amortize

GUIDANCE ON USEFUL LIFE OF INTANGIBLE ASSET ARISING FROM A CONTRACTUAL OR

OTHER LEGAL RIGHTS

 The useful life shall NOT exceed the period of the contract, but it may be shorter depending

on the period over which the entity expects to use the asset.

 If the contract is renewable, then the useful life of the intangible asset shall include the

renewal period ONLY IF :

a) There is supportive evidence (possibly based on experience) that contract will be

renewed;

b) Any conditions necessary to obtain renewal will be satisfied; AND

c) Cost of renewal is NOT significant compared to the FEBs expected to flow from renewal.

#FRwithAK CA Aakash Kandoi


IND AS 38 19.11

9. ANNUAL REVIEW AS PER IND AS 8 – ACCOUNTING POLICIES, CHANGES IN

ACCOUNTING ESTIMATES AND ERRORS

 Amortization Method, Residual Value & Useful Life should be reviewed at each financial year

end.

 If any Change – Then it should be accounted for as CHANGE IN ACCOUNTING ESTIMATE

10. IMPAIRMENT

 Impairment testing and impairment losses are accounted as per Ind AS-36.

 For an intangible asset with indefinite useful lives, an impairment review is required at least

ANNUALLY.

11. DERECOGNITION

 Derecognise the Asset when:

i)Disposed

OR

ii)No FEBs are expected

 Gain/Loss on Derecognition = Net Proceeds (-) Carrying Amount

Gain/Loss should be transferred to P&L, it should NOT be classified as Revenue i.e. it will be

shown under the head of Other Income.

"Great things never come from comfort zones"

#FRwithAK CA Aakash Kandoi

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