IAS 38

 Intangible asset = an identifiable non-monetary asset without physical substance  Identifiable: ◦ Separable ◦ Arises from contractual or legal rights  Non-monetary: ◦ Monetary = money held or assets to be received in fixed or determinable amounts of money  Asset: ◦ Resource controlled by the entity, as a result of past events & from which future economic benefits will flow  Without physical substance: ◦ Can I touch it?

 Brand names;  Goodwill;  Mastheads and publishing titles;  Computer software;  Licences and franchises;  Copyrights, patents and other industrial property rights, service and operating rights;  Recipes, formulae, models, designs and prototypes; and  Intangible assets under development.

Recognition – demonstrate that the item meets:  Definition of an intangible asset  Recognition criteria Recognition criteria:  Probable that the expected future economic benefits attributable to the asset will flow to the entity  Cost of the asset can be measured reliably

Separate acquisition:  Cost = purchase price (including import duties & non- refundable taxes, but after discounts & rebates) + directly attributable expenditure on preparing asset for use  Credit terms granted to the acquirer – measure purchase price at its present value. Example: Iwantit Limited acquired the Coca-Cola brand name from the Coca-Cola Corporation for R2 billion. The purchase price is to be settled in four equal advance annual instalments of R500 million each. The first instalment was paid on 1 January 20.5 The discount rate is 10% per annum.

The following are not included in the cost:  Cost of introducing a new product or service.  Cost of conducting business in a new area.  Administration and general overhead costs.  Costs incurred before the asset is brought into use but after the asset is capable of operating as intended.  Initial operating losses.  Costs of redeploying an intangible asset.

Acquisition as part of a business combination:  All of acquiree’s intangible assets (except goodwill) have to be recognised at fair value on the date of acquisition IA acquired by way of government grant:  Entity receiving an intangible asset free of charge from the government, may account for the grant in 1 of 2 ways: ◦ Recognise both intangible asset and grant initially at fair value ◦ Recognise both intangible asset and grant at N$0. Cost of IA would therefore consist only of costs attributable to preparing the asset for use

Exchange of assets:  The cost of an intangible asset acquired in exchange for another intangible (or another asset) is measured at fair value unless: ◦ the exchange lacks commercial substance, or ◦ the fair value of neither of the assets exchanged can be determined reliably.  If the acquired asset is not measured at fair value, its cost is measured at the carrying amount of the asset given up.

 Recognition problems, because of the following: ◦ identifying when, if at all, it becomes probable that the internally generated intangible asset will generate future economic benefits. ◦ determining the cost of the intangible asset reliably.  Expenditure should be expensed unless it forms part of the cost of the IA and meets the recognition criteria

Examples of expenditure to be expensed include:  Start up costs  Training costs  Advertising and promotional activities  Relocation and reorganisation costs Research:  the original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding  In this phase you cannot demonstrate that it is probable that the asset will generate future economic benefits, therefore these costs cannot be capitalised

Development  application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials  IA can be recognised if the entity can demonstrate ALL of the following: ◦ the technical feasibility of completing the intangible asset so that it will be available for use or sale; ◦ its intention to complete the intangible asset, and use it or sell it; ◦ its ability to use or sell the intangible asset; ◦ how the intangible asset will generate probable future economic benefits (including the existence of a market or its internal usefulness); ◦ the availability of adequate technical, financial and other resources to complete the development, and to use or sell the intangible asset; and ◦ its ability to measure reliably the expenditure attributable to the intangible asset during its development.

 Expenditure on an intangible asset that was initially recognised as an expense may not be recognised as part of the cost of an intangible asset at a later date.