INTANGIBLES PAS 38

Identifiable non-monetary asset without physical substance

ESSENTIAL CRITERIA
1. Identifiabilty
Separable
-capable of being separated from entity
-can be sold, transferred, licensed, rented or
exchanged
Arises from contractual or legal right
-Regardless whether these right is separable
*Good will cannot be separately recognized
Good will is not Intangible asset because it lacks
identifiability
2. Control
Power to enjoy future economic benefits and
Prevent others from enjoying the same
*Normally would arise from legal right (trademark,
copyrights, patent)
3. Future Economic substance
Increase revenue and/or
Cost reduction
INITIAL RECOGNITION
a. Probable future economic benefits
b. Cost of intangible asset measured reliably
Additional criteria for generated internally
c.
Judgment based on external evidence exercising
degree of certainty
Internally Generated Intangible Asset
Capitalizable
1. Direct cost, eg. Fees to register legal right
2. Materials used and service consumed
3. Employee benefits arising from generation of IA
4. Amortization of patent and license to generate IA
5. Borrowing cost (qualified IA)
Expensed
1. Selling, administrative and other general overhead
expenditure, not directly attributable to prepare asset for
intended use
2. Initial operating loss and inefficiencies
3. Staff training to operate asset
4. Legal and secretarial cost to establish new entity
5. Pre-opening cost (expenditure opening new facility)

6. Pre-operating cost ( expenditure starting new operation)

7. Ads and promotional costs
8. Relocation and reorganization cost
RESEARCH AND DEVELOPMENT COST
Research
Original and planned investigation to gain scientific and
technical knowledge
1. Laboratory research to obtain new knowledge
2. Searching for application of research finding and
knowledge
3. Conceptual formulation of possible product
4. Testing in search for product alternative
Development
Application of research findings to production, prior to
commercial feasibility
1. Design, construction and testing of pre-production
prototype
2. Design construction and testing chosen alternative
3. Design, construction and operation of pilot plant
4. Design of tools, jigs, molds and dies involving new
technology
*Research phase, if cannot distinguish between research and
development
Activities not R&D
1.
2.
3.
4.
5.
6.
7.
8.

Engineering follow through in commercial production

Quality control during commercial production
Trouble shooting during production
Routine to improve quality of an existing product
Adaptation of existing capability
Periodic design changes to existing products
Routine design of tools, jigs, molds and dies
Activity related to rearrangement or start-up of facilities

PPE and Intangible asset acquired for R&D

No alternative future use PPE and IA charged to R&D expense
Have alternative future use Depreciation/amortization charged
to R&D exp
In process R&D acquired in Business combination
Initially recognized asset at cost (even component is
research)
Subsequent expenditure
R&D expense (if it not
satisfies IA criteria)

Organization cost
Costs incurred in forming or organizing a corporation are
expense.
1. Legal fees related to incorporation (drafting articles or
by-laws)
2. Promotional and underwriting fee
3. Incorporation fees
4. Stock issuance cost*(printing stock certificates, transfer
book and seal)
*Debit to Share premium or RE (if no or insufficient share
premium balance)
1. FORM OF ACQUISITION
4. Purchased
18. Cash or other nonmonetary asset
21. Beyond normal credit
24. Business Combination
27. Government Grant
31. Exchange

35. Internally Generated (self

creation)1
39.

40. 1Internally Generated IA not

capitalized
1. Goodwill
2. Brands
3. Mastheads
4. Customer list
5. Publishing titles

2. INITIAL MEASUREMENT
5.
19. Cost
22. Cost (under normal credit)
25. FV on acquisition date
28. FV @ date received or
receivable or
29. Zero (if free)
32. With commercial
substance
1. FV given up
2. FV received
33. Lacks Commercial
substance
1. BV or CA of given
36. Research phase Expense
37. Development phase
depends2
41.
43.
45.
47.
49.
51.
53.

42. 2Development cost

1. Technical Feasibility o
used or sold
2. Adequate technical,
complete asset
3. Intention to complete
4. Ability to use or sell i
5. Probable future econ
6. Development cost ca

54.

55.

56.

57.
58.

59.INTANGIBLE ASSET
60.T
Y
P
E

64.M
ar
k
et
in
gre
la
te
d
67.C
u
st
o
m
er
re
la
te
d
70.A
rt
is
ti
c

61.DESCRIPTIO
N

65.Used in
promotion
of product

68.Resulted
from
interaction
with outside
parties

71.Ownership
right to
musical
works,
literary,

62.U
S
E
F
U
L
LI
F
E
66.1
0
yr
s
(r
e
n
e
w
a
bl
e)
69.E
n
ti
ty

s
e
st

i
m
at
e
72.C
re
at
o
r

63.EXAMP
LES

Trademarks,
Brand name
Internet
Domain
name
Newspaper
masthead,
noncompetition
agreement

Customer list
Order or
production
backlog
Customer
relationship

Copyright

re
la
te
d

photograph,
video

73.C
o
nt
ra
ct
re
la
te
d

74.Value of
right rise
from
contractual
agreement

76.Te
c
h
n
ol
o
g
yre
la
te
d

77.Innovation
or
technologic
al
developmen
t

79.G
o
o
d
w
ill

80.Excess of
cost over
FV of net
assets

lif
e
+
5
0
yr
s
75.C
o
n
tr
a
ct
-
b
a
s
e
s
78.2
0
yr
s(
e

xt
e

n
d
a
bl
e)
81.In
d
e
fi
ni
te

Franchise
broadcast
rights
License
agreement
Service or
supply
contracts
Construction
permit

Patented
technology
Trade secrets

82.aka
Gap
filler or
83.master
revalua
tion
accoun
t

84.
85.
86.PATENT

87.COPYRIG

88.TRADEMA

RK
91. Symbol,
sign, slogan
or name
used to
mark
product to
distinguish
it from
other.
92.20 yrs from
94. 50 yrs
96. 10 yrs,
date of
after
renewable
filing,
death,
10 yrs
93. Non
95. Noneach.
renewable
assignable
97. Indefinite
but
or subject
useful life if
extendable
to license.
automatic
renewal
98. PURCHASED :
Purchase price(cash
paid) + directly attributable cost to acquisition
99. INTERNALLY DEVELOPED:
100.
Licen
101.
Pro
102.
Filin
se & legal
duction
g, registry
fees to
exp & cost
& exp to
secure
to obtain
secure
patent
right
trademark
rights1
103.
1.
113.
118.
Shorter
114.
1.
119.
1 If
between
Useful life
renewal is
Legal life
115.
not certain
and Useful
116.
*Wr
120.
Amo
life
ite-off the
rtized over
104.
copyrights
useful life
105.
2.
cost
121.
Competitive
against
122.
2. If
Patent
revenue of
automatic
acquires
first
renewal
106.
=
printing
123.
Not
competitive
117.
amortized
patent and
89.Exclusive
right
granted by
government
to inventor.

HT
90. Exclusive
right
granted by
governmen
t to author,
composer
or artist.

old pate
Remaining
life of old
patent
107.
108.
3.
Related
Patent
acquired
109.
Exten
sion of life
= Related
& old patent

Extended
life
110.
No
extension :
111.
Related
patent
Old
patent
112.
Own life
remaining
life
124.
IMPAIRMENT:
If definite life,
impairment test when there is indication of
impairment at end of reporting period
125.
Indefinite life,
impairment test atleast annually
1
126.
Capitalized: Engineering and consulting costs to
developed patent from patent application is made
2
127.
Successful lawsuit = expense
Unsuccessful lawsuit = loss

128.
FRANCHISE
129.
Agreement which franchisor grants certain right to
franchisee
130.

131.

Cost

132.
1. Initial Franchise fee lump sum payment for
acquisition of franchise
133. Includes legal fee and expenses incurred
in acquisition of right
134.
2. Continuing Franchise fee continues payment
for future services
135. Franchisor Revenue
Franchisee Operating expense
136.

137.
Franchise Amortization
138.
Granted definitely
- shorter of useful life or
definite period
139.
Granted indefinitely - not amortized rather
tested for impairment annually
140.

141.
Book of franchisor
1. Accrual method
collectability of note
reasonably assured
2. Installment method
collectability of note NOT
reasonably assured
3. Cost recovery method collectability of note NOT
certain
142.

143.
144.

LEASEHOLD OR LEASE RIGHT

Leasehold
145.
Accounting
cost
Treatment
146.
Lump sum at
147.
Leasehold account
negotiation of lease
or
148.
Prepaid rent
(amortized lease term)
149.
Amount paid
150.
Leasehold account
to assign lease
151.
Periodic
152.
Lessee : Rent
payment in form of
expense
rent
153.
Lessor : Rent
income
154.
*Leasehold is amortized over lease term always
155.

156.
Leasehold Improvement (PPE)
157.
Improvement, modification, addition, and
renovation on leased property
Building walks

Landscaping
Lighting
Pavement
Driveways

Extraordinary
repairs
Partitions

Cabinets /
Shelves

Ventilating
system

158.

159.
Depreciation of Leasehold Improvement
160.
Lease term
Short
161.
Useful life of LI
162.
*No RV, improvement will be lessors property
upon termination of lease
163.

164.
Renewal Option
165.
Too
166.
Shorter
lease term
uncertain
VS
useful life
167.
Too
168.
Shorter
extended
certain (highly
least VS
useful life
probable)
169.
170.
CUSTOMER LIST
171.
Database that includes names, contact, and other
info for a list of customers
172.

173.
Cost
174.
Purc
hased
176.
Inter
nally
developed

175.
Purchase price + direct
attributable cost
177.
Expense

178.
179.
>
180.
<

GOODWILL
Goodwill
= Consideration transferred
FV of net assets acquired
Bargain Purchase = Consideration transferred
FV of net assets acquired

181.

182.
Recognition
183.
Intern
184.
Not recognized
ally
developed
185.
Purch
186.
Recognized, arise from
ased
business combination
Goodwill
187.

188.
Measurement
Indirect Valuation
189.
Excess of consideration transferred over FV of net
asset acquired
Direct Valuation
190.
Measurement of Goodwill using future earnings

191.

192.
Step 1: (FVNA excluding GW) FV of Net Asset
Acquired
193.
Total FV of Tangible of acquired co.
(excluding GW)
194.
-Total FV of Liabilities of acquired
co._________
195.
FV of Net Asset Acquired (FVNA excluding
orGW)
196.

197.
Average NA = Total net assets no. of
yrs *(FVNA is last yr net asset)
198.

199.
Step 2: Normal Earnings
200.
Normal Earnings = FV of Net Asset x
normal rate of return
201.
Average NA*
x
normal rate of return
202.

203.
Step 3 Average Earning (AE)
204.
Total earning for number of period
205.
-Gain on sale
206.
+Loss on sale
207.
+Total bonus of management personnel
( times no. of yrs)
208.
Adjusted earnings
209.
No. of periods________
210.
Average Earning (AE)
211.
212.

Step 4 Average Excess Earnings (AEE)

213.
214.
215.

Average Earnings
-Normal Earnings_____
Average Excess Earnings (AEE)

216.

Step 5
218.
Purchase 219.
PV of 220.
Capitali 221.
Capitaliza
of
AEE
zation of AEE
tion of AE
AEE
A
222.
Average Excess Earnings (AEE) 223.
verage Earnings
228.
224.

x no. of
230.
capitalization rate
perio
x
232.
capital 225. FVNA
d
PVOA
ization rate
(including GW)
229.
___
233.
=
226. -FVNA
=
231.
=
Goodwill
(excluding GW)
Good
Goodwill
227. =Goodwi
will
ll
235.
*Purchase Price
=
GW + FV of net asset
(excluding GW)
236.
*GW not amortized, useful life is indefinite, but
test for impairment annually
217.

237.
INTERNALLY DEVELOPED COMPUTER SOFTWARE
238.
Intangible Asset
239.
Expense
Inventory
Computer
240.
241.
242.
Technological
Project
Available
sold
feasibility
Initiate
for
d
Commerci
al
Cost of Inventory:
Cost of Intangible:
1. Duplication of master
243.
1. Coding cost
product
244.
2. Testing cost
2.
245.
3. Product master cost Packaging cost
3. Amortization of
246.
Computer software cost
247.
248.
249.
250.
AMORTIZATION OF CS
252.
Softw
are current
253.
x
251.
A
sales
Computer
mortiza
software cost
256.
Expec
tion =
254.
ted current
sales
258.
259.
*if future economic benefit cannot reliably
determined, straight line method
260.
CLASSIFICATION OF CS
1. CS as a rule and if not integral part Intangible asset
2. Integral part of a PPE
PPE
3. For resale
Inventory