The objective of IAS 38 is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another IFRS. The Standard requires an entity to recognise an intangible asset if, and only if, certain criteria are met. The Standard also specifies how to measure the carrying amount of intangible assets and requires certain disclosures regarding intangible assets. [IAS 38.1] Show IAS 38 applies to all intangible assets other than: [IAS 38.2-3]
Intangible asset: an identifiable non-monetary asset without physical substance. An asset is a resource that is controlled by the entity as a result of past events (for example, purchase or self-creation) and from which future economic benefits (inflows of cash or other assets) are expected. [IAS 38.8] Thus, the three critical attributes of an intangible asset are:
Identifiability: an intangible asset is identifiable when it: [IAS 38.12]
Examples of intangible assets
Intangibles can be acquired:
Recognition criteria. IAS 38 requires an entity to recognise an intangible asset, whether purchased or self-created (at cost) if, and only if: [IAS 38.21]
This requirement applies whether an intangible asset is acquired externally or generated internally. IAS 38 includes additional recognition criteria for internally generated intangible assets (see below). The probability of future economic benefits must be based on reasonable and supportable assumptions about conditions that will exist over the life of the asset. [IAS 38.22] The probability recognition criterion is always considered to be satisfied for intangible assets that are acquired separately or in a business combination. [IAS 38.33] If recognition criteria not met. If an intangible item does not meet both the definition of and the criteria for recognition as an intangible asset, IAS 38 requires the expenditure on this item to be recognised as an expense when it is incurred. [IAS 38.68] Business combinations. There is a presumption that the fair value (and therefore the cost) of an intangible asset acquired in a business combination can be measured reliably. [IAS 38.35] An expenditure (included in the cost of acquisition) on an intangible item that does not meet both the definition of and recognition criteria for an intangible asset should form part of the amount attributed to the goodwill recognised at the acquisition date. Reinstatement. The Standard also prohibits an entity from subsequently reinstating as an intangible asset, at a later date, an expenditure that was originally charged to expense. [IAS 38.71]
If an entity cannot distinguish the research phase of an internal project to create an intangible asset from the development phase, the entity treats the expenditure for that project as if it were incurred in the research phase only. A research and development project acquired in a business combination is recognised as an asset at cost, even if a component is research. Subsequent expenditure on that project is accounted for as any other research and development cost (expensed except to the extent that the expenditure satisfies the criteria in IAS 38 for recognising such expenditure as an intangible asset). [IAS 38.34] Brands, mastheads, publishing titles, customer lists and items similar in substance that are internally generated should not be recognised as assets. [IAS 38.63]
The following items must be charged to expense when incurred:
For this purpose, 'when incurred' means when the entity receives the related goods or services. If the entity has made a prepayment for the above items, that prepayment is recognised as an asset until the entity receives the related goods or services. [IAS 38.70] Intangible assets are initially measured at cost. [IAS 38.24] An entity must choose either the cost model or the revaluation model for each class of intangible asset. [IAS 38.72] Cost model. After initial recognition intangible assets should be carried at cost less accumulated amortisation and impairment losses. [IAS 38.74] Revaluation model. Intangible assets may be carried at a revalued amount (based on fair value) less any subsequent amortisation and impairment losses only if fair value can be determined by reference to an active market. [IAS 38.75] Such active markets are expected to be uncommon for intangible assets. [IAS 38.78] Examples where they might exist:
Under the revaluation model, revaluation increases are recognised in other comprehensive income and accumulated in the "revaluation surplus" within equity except to the extent that they reverse a revaluation decrease previously recognised in profit and loss. If the revalued intangible has a finite life and is, therefore, being amortised (see below) the revalued amount is amortised. [IAS 38.85] Intangible assets are classified as: [IAS 38.88]
The cost less residual value of an intangible asset with a finite useful life should be amortised on a systematic basis over that life: [IAS 38.97]
Expected future reductions in selling prices could be indicative of a higher rate of consumption of the future economic benefits embodied in an asset. [IAS 18.92] The standard contains a rebuttable presumption that a revenue-based amortisation method for intangible assets is inappropriate. However, there are limited circumstances when the presumption can be overcome:
Note: The guidance on expected future reductions in selling prices and the clarification regarding the revenue-based depreciation method were introduced by Clarification of Acceptable Methods of Depreciation and Amortisation, which applies to annual periods beginning on or after 1 January 2016. Examples where revenue based amortisation may be appropriate IAS 38 notes that in the circumstance in which the predominant limiting factor that is inherent in an intangible asset is the achievement of a revenue threshold, the revenue to be generated can be an appropriate basis for amortisation of the asset. The standard provides the following examples where revenue to be generated might be an appropriate basis for amortisation: [IAS 38.98C]
The asset should also be assessed for impairment in accordance with IAS 36. [IAS 38.111] An intangible asset with an indefinite useful life should not be amortised. [IAS 38.107] Its useful life should be reviewed each reporting period to determine whether events and circumstances continue to support an indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite should be accounted for as a change in an accounting estimate. [IAS 38.109] The asset should also be assessed for impairment in accordance with IAS 36. [IAS 38.111] Due to the nature of intangible assets, subsequent expenditure will only rarely meet the criteria for being recognised in the carrying amount of an asset. [IAS 38.20] Subsequent expenditure on brands, mastheads, publishing titles, customer lists and similar items must always be recognised in profit or loss as incurred. [IAS 38.63] For each class of intangible asset, disclose: [IAS 38.118 and 38.122]
Additional disclosures are required about:
What is included in inventory holding cost?Inventory holding costs are the fees incurred for storing goods or inventory in a warehouse. Stored inventory is a liability that hits profit margins and increases businesses' operating costs. Rent for space, security, depreciation costs and insurance are among inventory holding costs.
Which of the following is not included as an inventory holding cost?Storage cost is not included in the cost of inventory.
What does holding inventory mean?The main purpose of holding inventory is to avoid stock-out cost. All the firms must forecast the demand of their product and keep the inventory of raw materials, Work in Progress Inventory, finished goods and consumables so that no customer is sent back empty handed.
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