Study unit 3 Chapter 9
Intangible assets
3.1. IAS 38
o Definitions:
▪ INTANGIBLE ASSETS = Identifiable non-monetary asset without physical substance
1. Identifiable if it: can be separated from entity OR arises from contractual or legal right
2. Where an asset is: resource controlled by the entity as result of past event from which inflow of future
economic benefits (FEB) are expected
We control FEB if we can: restrict access to the FEB; and has the power to obtain the FEB
o Scope: Not allowed if related to internally generated: trademarks, mast headers, publishing titles, client lists and similar items
o Measurement: Cost capitalized after PPE: purchase cost; directly attributable costs (those necessary to bring about the asset
that makes it possible to use it in the way management is intended)
Other internally generated intangible assets
o Research phase: Original and planned investigation undertaken with prospect of gaining new scientific or technical
knowledge = no guarantee of expected future benefits or probability, thus ALWAYS expense *if you cannot distinguish, treat
as research phase
o Development phase: Application of research findings to a plan or design for production of new or substantially improved
materials, products, systems, etc. BEFORE start of commercial production use; example: prototypes/model, pilot plant, tool/
jigs/moulds/dies
Extra recognition criteria:
▪ Technical feasibility of completed asset
▪ Intention to complete asset and then use or sell
▪ Ability to use or sell
▪ How future economic benefits will be generated
IF (1) adequate resources are available to complete project for sale or use, (2) costs in respect of development of asset can
be reliably measured, and above criteria is satisfied recognise
o Purchased research and development: research can be capitalised if it meets definition and is identifiable
Website cost criteria/phases (SIC 32)
o Planning (expense): feasibility study; defining the hardware and software specifications; evaluate alternative products;
choose preferences
o Application and infrastructure (capitalise if 6 criteria met): obtaining a domain name; buy/development of server software
o Graphic design (capitalise if 6 criteria met): layout & colours (appearance)
o Content development (capitalise if 6 criteria met): writing info; loading pictures; development of functions
o Operating (expense): ready for use
Recognition and measurement
o Initial measurement:
▪ Cash purchase: purchase price, import duties, non-refundable tax, after discounts; directly attributable costs
▪ Exchange for other asset: measure at FV of asset given up UNLESS no commercial substance, FV of both assets
can’t be measured reliably, use of CA of asset given up
▪ Business combination: can be capitalised as asset; FV on acquisition date
o Costs are measured at fair value, unless the asset was purchased as a separate asset (follow the standard rules in any case)
o Separate acquisition: Recognition: meets definition; Measurement: cost
o Exchange of assets
▪ Recognition: meets definition AND transaction has commercial substance
▪ Measurement: cost, where cost: FV of the stated asset; or FV of asset acquired (if it becomes clearer); or CA of the
asset stated (if no FV)
ACCC 371 @ NWU 2021 Ruané la Grange © 083 292 2662 1
Intangible assets
3.1. IAS 38
o Definitions:
▪ INTANGIBLE ASSETS = Identifiable non-monetary asset without physical substance
1. Identifiable if it: can be separated from entity OR arises from contractual or legal right
2. Where an asset is: resource controlled by the entity as result of past event from which inflow of future
economic benefits (FEB) are expected
We control FEB if we can: restrict access to the FEB; and has the power to obtain the FEB
o Scope: Not allowed if related to internally generated: trademarks, mast headers, publishing titles, client lists and similar items
o Measurement: Cost capitalized after PPE: purchase cost; directly attributable costs (those necessary to bring about the asset
that makes it possible to use it in the way management is intended)
Other internally generated intangible assets
o Research phase: Original and planned investigation undertaken with prospect of gaining new scientific or technical
knowledge = no guarantee of expected future benefits or probability, thus ALWAYS expense *if you cannot distinguish, treat
as research phase
o Development phase: Application of research findings to a plan or design for production of new or substantially improved
materials, products, systems, etc. BEFORE start of commercial production use; example: prototypes/model, pilot plant, tool/
jigs/moulds/dies
Extra recognition criteria:
▪ Technical feasibility of completed asset
▪ Intention to complete asset and then use or sell
▪ Ability to use or sell
▪ How future economic benefits will be generated
IF (1) adequate resources are available to complete project for sale or use, (2) costs in respect of development of asset can
be reliably measured, and above criteria is satisfied recognise
o Purchased research and development: research can be capitalised if it meets definition and is identifiable
Website cost criteria/phases (SIC 32)
o Planning (expense): feasibility study; defining the hardware and software specifications; evaluate alternative products;
choose preferences
o Application and infrastructure (capitalise if 6 criteria met): obtaining a domain name; buy/development of server software
o Graphic design (capitalise if 6 criteria met): layout & colours (appearance)
o Content development (capitalise if 6 criteria met): writing info; loading pictures; development of functions
o Operating (expense): ready for use
Recognition and measurement
o Initial measurement:
▪ Cash purchase: purchase price, import duties, non-refundable tax, after discounts; directly attributable costs
▪ Exchange for other asset: measure at FV of asset given up UNLESS no commercial substance, FV of both assets
can’t be measured reliably, use of CA of asset given up
▪ Business combination: can be capitalised as asset; FV on acquisition date
o Costs are measured at fair value, unless the asset was purchased as a separate asset (follow the standard rules in any case)
o Separate acquisition: Recognition: meets definition; Measurement: cost
o Exchange of assets
▪ Recognition: meets definition AND transaction has commercial substance
▪ Measurement: cost, where cost: FV of the stated asset; or FV of asset acquired (if it becomes clearer); or CA of the
asset stated (if no FV)
ACCC 371 @ NWU 2021 Ruané la Grange © 083 292 2662 1
