Intangible assets: its recognition, valuation and reporting Neisse University 25.04.2019 Matěj Štýbr, Pavel Služevský, Jonathan Quecke, Tomáš Košíček

Table of contents Definition of intangible assets What are intangible assets? – examples IFRS (International Financial Reporting Standards Example of recognition and valuation for IFRS Intangible assets under Czech accounting regulations Valuation of intangible assets in Czech the accounting system§ Reporting of intangible assets in the Czech Republic Intangible assets under German GAAP Concessions, industrial and similar rights Goodwill and payments to accounts Conclusion

Definition of Intangible Assets First of Assets - requires a past event that has given rise to a resource that the entity controls and from which future economic benefits are expected to flow According to the International Accounting Standards Board intangible assets - an identifiable non-monetary asset without physical substance.

What are intangible assets? Some examples: patented technology computer software trademarks internet domains video and audio-visual material customer and supplier relationships (including customer lists) marketing rights

IFRS (International Financial Reporting Standards) Recognizing Intangible Assets under the International Standards must meet definition of intangible assets is identifiable either being separable arising from contractual or other legal rights Valuation of Intangible Assets Intangible assets that meet the recognition criteria are measured by cost initially, and subsequently measured at cost or using the revaluation model, and amortised (unless it has an indefinite life, then it is not amortised)

IFRS (International Financial Reporting Standards) Cost model : After initial recognition intangible assets should be carried at cost minus accumulated amortisation and losses due to impairment Revaluation model : Intangible assets may be carried at a revalued amount (based on fair value) minus any subsequent amortisation and impairment losses only if fair value can be determined by reference to an active market.

Example of Recognition and Valuation for IFRS Initial recognition: computer software Purchased: capitalise Operating system for hardware: include in hardware cost Internally developed (whether for use or sale): charge to expense until technological feasibility, probable future benefits, intent and ability to use or sell the software, resources to complete the software, and ability to measure cost. Amortisation: over useful life, based on pattern of benefits (straight-line is the default).

Intangible assets under Czech accounting regulations Czech legislation does not give a general definition of intangible assets. It only sets a list of items that can be recognized as intangible assets and those that can not be Intangible assets include: Intangible results of research, software, valuation rights and goodwill. With the requirement that they have a useful life longer than one year and their valuation must be higher than the limit set by the accounting entity

Valuation of Intangible assets in the Czech accounting system Intangible assets are valued at their acquisition price and the costs relating to their acquisition in case of purchase and own costs in case of creation by own activity. Comparison approach Is based on a principle of equality, which means that the competitive market of intangible assets is able to create equal prices with comparable usability and we use the market price

Valuation of Intangible assets in the Czech accounting system Cost approach Is based on a principle of economical substitution, which means that we are not willing to pay for an intangible asset more, than we would pay in economical costs to make an intangible asset with comparable usability Income approach Is the most commonly used principle and is based on the expectation that the interested person is not willing to pay more than is the expected income made from the use of an intangible asset

Reporting of Intangible assets in the Czech Republic Long-term intangible assets are posted in the balance sheet in section B.I. – Long term intangible assets. In addition provided advance payments for finished and unfinished intangible assets are posted here too Large, medium-size, small and micro accounting entities with a duty of verification of the financial statement by an auditor state the balance at the beginning and the end of the accounting period with the increase and decrease in the course of the accounting period in the notes for the individual entries Information about adjusting entries at the beginning and end of the accounting period, including their increase or decrease in the course of the accounting period and the height of interests included in the valuation

Intangible Assets under German GAAP The general definition in Germany for intangible assets is any fixed assets that is not tangible or financial There are three types of recognized intangible assets: Concessions, industrial and similar rights and licenses Goodwill Payments on Accounts

Intangible Assets under German GAAP Recognized intangible assets with the exception of acquired goodwill have to be amortized German GAAP does not allow for the revaluation of assets in excess of their original value

Concessions, industrial and similar rights There are acquired identifiable intangible assets and internally generated identifiable intangible assets. Acquired identifiable intangible assets refer to the purchase of patents, trademarks, licenses, or customer lists etc. Internally generated identifiable intangible assets include legal fees, registration costs, and other expenditures directly related to securing rights such as patents or copyrights. Internally developed and purchased software are capitalized and amortized over the entire lifespan

Goodwill and Payments to Accounts Prohibition to recognize self created assists, meaning no self produced goodwill, so if not recognized must be expensed Refer to the related costs on the acquisition of intangible assets, research and development expenditure, start up costs etc. Own research and development is expensed as incurred

Conclusion There are many similarities between the different accounting systems. The IFRS system is the clearest with what to do with intangible assets. The Czech and German ones are not that clear on what intangible assets are and how to report on them although through the harmonization processes it has become clearer

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