1. R&D; Goodwill; Intangible Assets and Brands
Chapter 19
R&D; Goodwill; Intangible Assets and Brands

2. define and explain how to account for research and development (R&D), goodwill and other intangible assets;
account for development costs;
account for impairment;
prepare extract of the entries and disclosure of these items in the statement of comprehensive income and statement of financial position.

4. Intangibles An intangible asset is defined under IAS 38, as:
an identifiable non-monetary asset without physical substance
Intangibles include systems, licences, intellectual property, market knowledge and trademarks
An intangible asset must be identifiable and there must be control, as well as the production of future economic benefits and its cost can be reliably measured before it may be recognised

5. Intangibles Initial recognition is at cost
Two categories of intangible asset:
externally acquired
internally generated .

6. Intangibles – Externally acquired
If purchased separately, eg. buying rights to a book before making it into a film, cost can be established as
the purchase price and any other expenses associated with readying the asset for its intended use.
plus any duties and non-refundable taxes
less any trade discounts or rebates

7. Intangibles – Internally generated
These arise from the activities of the business.
Expenditure on internally developed brands, such as mastheads (newspaper and magazine titles), publishing titles, and customer lists, cannot be distinguished from the cost of developing the entity’s overall business.
These intangibles do not meet the definition of assets, and shall not be recognised as intangible assets (IAS 38)

8. IFRS 3 Business Combinations
Goodwill = cost of acquisition - acquirer’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities acquired at the date of the exchange transaction.
Purchased goodwill is based on
Transaction with third party at arm’s length
Internally generated goodwill is based on
Directors’ valuation of internal goodwill by valuing
Business as a whole
Separable assets.
Goodwill will be covered in more detail in ACF 202

9. Search for alternatives
Materials
Products
Processes
original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding i.e. obtaining new knowledge
Evaluation of alternatives

10. Accounting
Not to be carried forward in statement of financial position i.e research is not capitalised or shown as an asset on the balance sheet. There is no certainty of any future economic benefits being achieved
Expense in the year in which incurred

11. Prior to commencement of commercial production
Application of research findings to a plan for production of new or substantially improved
Products
Processes
Systems
Prior to commencement of commercial production

12. Development costs comprise
Directly attributable costs
Materials
Labour
Fees such as patents
Allocatable on a reasonable and consistent basis
Necessary and identifiable overheads
Depreciation
Insurance premiums, rent.

13. Development cost criteria IAS 38
Intention to complete and use or sell
Generate future economic benefits
Existence of market for asset or output
Technical feasibility
Availability of adequate resources to complete
Technical
Financial
Reliable measurement of costs possible
Expense if not recoverable from future revenue. Otherwise, capitalise and show on balance sheet

14. Activities that are neither research or development
Engineering follow­through in an early phase of commercial production
Quality control during commercial production, including routine testing
Troubleshooting in connection with breakdowns during production
Routine efforts to improve the qualities of an existing product.

15. Brand accounting
Include in statement of financial position to pre-empt equity depletion caused by goodwill write-offs or amortisation
Typically not amortised but subject to impairment review.

16. Intellectual property – two categories
Industrial property
Inventions
Trademarks
Designs
Copyright
Literary and artistic works.