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I. OBJECTIVE
1. To provide guidelines on the accounting policy for intangible assets
II. DEFINITION OF TERMS
1. Intangible Assets – refers to assets of the company that does not have physical existence. It includes patents, copyrights, trademarks, goodwill, licenses, etc.
III. GENERAL POLICIES
Intangible asset is recognized, whether purchased or self-created (at cost) if, and only if:
• It is probable that the future economic benefits that are attributable to the asset will flow to the entity; and
• The cost of the asset can be measured reliably
Initial Recognition: Research and Development Costs
• Charge all research cost to expense
• Development costs are capitalized only after technical and commercial feasibility of the asset for sale or use have been established. This means that the entity must intend and be able to complete the intangible asset and either uses it or sells it and be able to demonstrate how the asset will generate future economic benefits
Initial Recognition: Computer Software
• Purchased: capitalize
• Operating system for hardware: include in hardware cost
• Internally developed (whether for use or sale): charge to expense until technological feasibility, probable future benefits, intent and ability to use or sell the software, resources to complete the software, and ability to measure cost
• Amortization: over useful life, based on pattern of benefits (straight-line method)
Measurement:
a) Initial Measurement
Intangible assets are initially measured at cost
b) Subsequent Measurement
Cost model. After initial recognition, the benchmark treatment is that intangible assets should be carried at cost less any amortization and impairment losses.
Intangible assets are classified as:
• Indefinite life: no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity
• Finite life: a limited period of benefit to the entity
The cost less residual value of an intangible asset with a finite useful life should be amortized on a systematic basis over that life:
• The amortization method should reflect the pattern of benefits
• If the pattern cannot be determined reliably, amortize by the straight line method
• The amortization charge is recognized in profit or loss unless another IFRS requires that it be included in the cost of another asset
• The amortization period should be reviewed at least annually
An intangible asset with an indefinite useful life should not be amortized. 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.
Subsequent expenditure on an intangible asset after its purchase or 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 standard of performance and the expenditure can be measured and attributed to the asset reliably.
A single line item for INTANGIBLE ASSET should appear in the Balance Sheet.
• Computer Software – Quorus Enterprise – system used by the company. It is amortized on a straight-line basis.
• Goodwill – It is the value of the entity over and above the value of its assets. It is not subject to amortization but it is tested for impairment annually.
• Government Licenses – The right to engage in regulated activities. It is subject to amortization.
• Trademarks and Trade Name – Trademarks and trade names include corporate logos, advertising jingles, and product names that have been registered with the government and serve to identify specific companies and products. It is subject to amortization.
• Accumulated Amortization – A contra asset account for intangible asset. The account credited in the amortization of the asset.
IV. PROCEDURE FLOWCHART
Flowchart Title
(Not Applicable)
V. REFERENCE/INTERFACE PROCESS
Document Title
1. Summary of Accounting Policies
VI. FORMS AND RECORDS
Form Title
(Not Applicable)
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