1. Financial Accounting II Lecture 08

2. Intangible Assets Companies Ordinance 1984

3. Classification of intangible assets: Goodwill Patent, Copyrights, Trademarks and Designs Others (to be specified) Classification Fourth Schedule

4. Original cost or the amount of valuation Additions thereto and deductions there from since the previous balance sheet date Disclosure Requirements Fourth Schedule

5. Aggregate amount written off, or provided or retained, up to the date of the balance sheet, by way of provision for depreciation or amortization or diminution in value. Disclosure Requirements Fourth Schedule

6. Intangible Assets International Accounting Standard 38

7. An intangible asset is an identifiable Non- Monetary Asset without physical substance held for use in production or supply of goods or services, for rentals to others, or for administrative purposes.

8. Scientific or technical knowledge (computer software) Design and implementation of new processes Licenses (Fishing licenses, Import / Export quotas) Intangible Resources

9. Intellectual property (patents, copyrights, motion picture films) Market knowledge (customer lists, customer or supplier relationships, market share) Trademarks Intangible Resources

10. Identifiably Control over a resource Existence of future economic benefits Criteria for Recognition

11. If an intangible resource does not meet the definition of intangible asset, then any expenditure incurred to acquire or internally generate it will be recorded as current period expense. Intangible Resources

12. An intangible asset should be recognized if and only if, Future economic benefits that are attributable to the asset will flow to the enterprise The cost of the asset can be measured reliably Recognition

13. An intangible asset should be measured initially at cost. Initial Measurement

14. The cost of the intangible asset comprises its purchase price, including any duties and non-refundable taxes and any directly attributable expenditure on preparing the asset for its intended use. Separate Acquisition

15. If an intangible asset is acquired in a business combination, the cost of the asset is based on its fair value on the date of acquisition. Acquisition as Part of a Business Combination

16. In some cases an intangible asset may be created free of charge, or at a nominal value as a result of a government grant. Acquisition by Way of a Govt Grant

17. Examples include: Airport landing rights Licenses to operate radio / TV channels Import licenses or quotas Access to other restricted territories Acquisition by Way of a Govt Grant

18. An enterprise may choose to recognize both the intangible asset and the government grant at fair value initially, Acquisition by Way of a Govt Grant

19. If the enterprise chooses not to recognize the asset at its fair value they may recognize the asset at the nominal amount paid plus any expenditure incurred for preparing the asset for its intended use. Acquisition by Way of a Govt Grant

20. In case of exchange with a Dissimilar Asset, the value of the item acquired is the fair market value of the item surrendered adjusted for any cash of cash equivalent transferred. Exchange of Assets Dissimilar Assets

21. In case of exchange with a Similar Asset, the value of the item acquired is the carrying amount of the item surrendered adjusted for any cash or cash equivalent transferred. Exchange of Assets Similar Assets

22. Internally generated goodwill should not be recognized as an asset. Internally Generated Goodwill

23. To assess whether an internally generated asset meets the criteria for recognition, an enterprise classifies the generation of asset into following phases: Research phase Development phase Internally Generated Intangible Assets

24. No intangible asset arising from research (or from research phase of an internal project) should be recognized. Expenditure on research (or from research phase of an internal project) should be recognized as an expense when incurred. Research Phase

25. An intangible asset arising from development (or from development phase of an internal project) should be recognized, if and only if, an enterprise 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 asset and use or sell it, Its ability to use or sell the asset. Development Phase

26. How the intangible asset will generate probable future benefits, The availability of technical, financial and other resources to complete the asset. Ability to measure the expenditure attributable to the intangible asset during development reliably. Development Phase

27. Subsequent expenditure on an intangible asset after its purchase or its completion should be recognized as an expense when it is incurred, unless: It is probable that this expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standards. This expenditure can be measured and attributed to the asset reliably. Subsequent Expenditure

28. The depreciable amount of an intangible asset should be allocated on a systematic basis over the best estimate of its useful life. The maximum useful life allowed is 20 years. Amortisation Period

29. Subsequent to initial measurement an intangible asset is carried at: Cost less accumulated amortization and any accumulated impairment loss. OR Alternatively At a revalued amount, being its fair value at the date of revaluation less any subsequent accumulated amortization and any subsequent impairment loss. Measurement Subsequent to Initial Recognition