ing Standard - 26 Intangible Assets 562s1c
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ing Standard – 26 (AS – 26) Intangible Assets By: Jayesh Ratadia
Content ☺ Objective ☺ Scope ☺ Definition of Intangible Assets ☺ Conditions for Recognition ☺ Cost of Intangible Assets ☺ Internally Generated Intangible Assets ☺ Amortisation of Intangible Assets ☺ Disclosure of Intangible Assets ☺ Comparison between IFRS, US GAAP and Indian GAAP
Saturday, November 21, 2009
2
1
Objective
Prescribe the ing treatment for Intangible Assets which are not dealt with specifically in other ing Standard.
Saturday, November 21, 2009
3
Scope Applies to all enterprises in ing for intangible assets, except for ☺ Intangible assets covered by other ing standard ☺ Financial assets ☺ Mineral rights and expenditure on exploration ☺ Intangible assets arising in Insurance Company from contract with policy
holders ☺ Expenditure in respect of termination benefits (AS 15) ☺ Deferred tax assets (AS 22) ☺ Goodwill arising on Amalgamation / Consolidation (AS 14 and 21) ☺ Tangible assets held for sale (AS 2) ☺ Lease (AS 19) ☺ ing issue of specialised nature – e.g. discount / in relation
to borrowing, share issue expenses, discount on issue of shares etc. Saturday, November 21, 2009
4
2
Definition of Intangible Assets Intangible assets is: ☺ Identifiable non monetary assets ☺ Without physical substance ☺ Held for use in production or supply of goods or services Examples: ☺ Licenses
☺ Franchises
☺ Intellectual property rights
☺ Mortgage services rights
☺ Brand names, publishing titles
☺ Import quotas
☺ Computer software
☺ Customer supplier relationships
☺ Patents, copy rights
☺ Customer loyalty
☺ Motion picture licenses
☺ Market share and marketing right
☺ Customers lists
☺ Goodwill
Saturday, November 21, 2009
5
Conditions for Recognition Identifiability
☺Distinguishable from goodwill. ☺Enterprise
can rent, sale, exchange or distribute the future economic benefits from assets without disposing the same.
☺Separability is not necessary condition if
future economic benefits are separately identifiable. Control
☺Power to obtain future economic benefits. ☺Legal rights over the use of assets.
Future economic benefits
Saturday, November 21, 2009
☺Revenue, cost savings or other benefits
flowing from the assets.
6
3
Cost of Intangible Assets... Recognise if, and only if, ☺ Probability of flow of future economic benefits ☺ Cost can be reliably measured
Intangible Assets should be recognised only at cost Separate acquisition ☺ Recognise at cost of acquisition ☺ Cost of acquisition includes:
☺ Purchase price (net of any discounts, rebates etc) ☺ Non recoverable import duties and other taxes ☺ Direct expenses to make assets ready for intended use Saturday, November 21, 2009
Cost of Intangible Assets…
7
(contd…)
Acquisition as part of Amalgamation (AS 14) ☺ Amalgamation in nature of purchase
☺ Recognise at cost (i.e. at fair value) if consideration allocated to individual assets and liabilities based on fair value as on the date of amalgamation. ☺ Forms part of goodwill, If cost (fair value) can not be measured reliably. ☺ If no active market exists, restrict cost to an amount that does not create or increase capital reserve ☺ Amalgamation in Nature of Merger
☺ Recognise at book Value. (of transferor company) Acquisition by way of Government Grant ☺ ed at acquisition value or nominal value as applicable (AS 12).
Exchange of assets / Shares or Securities ☺ ed at its Fair value or of the securities issued, whichever is more clearly
evident (AS 10). Saturday, November 21, 2009
8
4
Internally Generated Intangible Assets… Goodwill ☺Not to be recognised as Intangible Asset as;
☺ Not an identifiable resource controlled by the entity ☺ Cost can not be measured reliably. ☺Difference between the Market value and carrying amount of entity
cannot be considered as cost of intangible assets as these difference are due to range of factors that affect the value of entity and are not in control of entity. ☺Internally generated brands, mastheads, publishing titles, customer lists
and items similar in substance should not be recognised as Intangible Assets as expenditure on these cannot be distinguished from the cost of developing the business as a whole Saturday, November 21, 2009
Internally Generated Intangible Assets...
9
(Contd…)
Others Internal generation of Intangible Assets classified into two phases: ☺ Research Phase
Recognise expenditure incurred during Research phase as an expense, when incurred as probability of future economic benefits not demonstrable. ☺ Development Phase
Recognise Intangible Assets if entity can demonstrate all the following conditions: ☺ Technical feasibility to complete the Intangible Assets so that it will be available for use. ☺ Intention and Availability of adequate technical, financial and other resources to complete the assets ☺ Ability to use / sell it. ☺ Demonstration of probable future economic benefits. ☺ Ability to measure reliably the expenditure attributable to Intangible Assets. Saturday, November 21, 2009
10
5
Internally Generated Intangible Assets...
(Contd…)
Cost: ☺ Cost of Internally generated Intangible Assets is calculated from the time when the Intangible Assets first meet the recognition criteria till the asset becomes ready for use. ☺ Cost comprises: ☺ Directly attributable cost such as, ☺ Expenditure on materials / services. ☺ Salary, wages and other employee related cost of personnel directly engaged in generating the assets. ☺ Any other expenditure such as registration fees, amortisation of patents and licenses etc. ☺ Overhead cost allocated on reasonable basis e.g. depreciation, borrowing cost etc. ☺ Cost does not include ☺ Selling, istrative and other general overheads. ☺ Initial operating loss. ☺ Expenditure on training staff to operate the asset.
Saturday, November 21, 2009
Internally Generated Intangible Assets...
11
(Contd…)
☺Past expenses should not be recognised as an asset. ☺Subsequent expenditure incurred on Intangible Asset should be recognise as expenditure unless; ☺ It has increased the future economic benefits of the Intangible Assets; and ☺ The expenditure can be measured and attributed to the assets reliably.
☺The Intangible assets should be carried at cost less any accumulated amortisation / impairment.
Saturday, November 21, 2009
12
6
Amortisation… Period ☺ Amortise over the best estimated useful life of the asset. ☺ Rebuttable presumption is that useful life can not exceed more than 10 years. ☺ Persuasive evidence required to justify useful life of more than 10 years. ☺ Amortisation period of more than 10 years requires: ☺ Annual impairment review ☺ Disclosure for reasons for rebuttable presumption and factors for determining useful life. ☺ In case of assets controlled through legal rights, useful life not to exceed the period of legal rights unless; ☺ Legal rights are renewable; and ☺ Renewal is virtually certain.
Saturday, November 21, 2009
Amortisation…
13
(Contd…)
Method of amortisation ☺ Unit Production Method, Straight Line Method or Reducing Balance Method. ☺ Straight Line Method considered as most appropriate. ☺ Residual value assumed to be of Zero, unless there is a commitment of purchase
or active market for sale. ☺ Residual Value determined at initial recognition and cannot be subsequently
increased for changes in prices or value. ☺ Amortisation period and method needs to be reviewed atleast at each financial
year end. ☺ Annual impairment review required for assets not available for use.
Saturday, November 21, 2009
14
7
Disclosure Requirement Disclose for each class & separately for internally generated and others: ☺ Useful lives or amortisation rate; ☺ Amortisation method; ☺ Gross carrying amount & accumulated amortisation ☺ Reconciliation of carrying amount showing: ☺ Additions/ retirement and disposals; ☺ Impairment losses recognised/ reversed, if any ☺ Amortisation recognised ☺ Other changes in the carrying amount. ☺ Changes in ing policy as per AS 5 ☺ Where useful life is more than ten years, the reasons there of ☺ Description, carrying amount and remaining period for an Intangible Assets of
material amount. ☺ Details of Intangible Assets that are pledged or have other restrictions. ☺ Commitments for acquisition of Intangible Assets. ☺ Research and Development expenses recognised as expenses. ☺ The entity is encouraged to give description of fully amortised Intangible Assets,
still in use. Saturday, November 21, 2009
15
IFRS vs US GAAP vs Indian GAAP Recognition Criteria ☺ Separately Acquired Intangibles
☺ Same in all the three frameworks ☺ Internally Generated Intangibles
☺ Same in case of Indian GAAP and IFRS where as in US GAAP recognition of internally generated intangible asset is rare. As both research and development cost needs to be expensed as incurred unless addressed by separate standard. ☺ Development costs related to computer software developed for external use are
capitalized once technological feasibility is established and capitlization ceases when the product is available for general release to customers. In the case of software developed for internal use, only those costs incurred during the application development stage (as defined in SOP 98-1 ing for the Costs of Computer Software Develop or Obtained for Internal Use) may be capitalized.
Saturday, November 21, 2009
16
8
IFRS vs US GAAP vs Indian GAAP
(Contd…)
Measurement ☺Separately Acquired Intangibles
☺ Same in all the three frameworks ☺Internally Generated Intangibles
☺ Same in case of Indian GAAP and IFRS where as in case of US GAAP development costs are expensed as incurred unless addressed by a separate standard. Under US GAAP costs of internally developing, maintaining and restoring intangible assets that are not specifically identifiable and that have indeterminable lives, or that are inherent in a continuing business and related to entity as a whole, are recognized as an expense when incurred. ☺Subsequent Measurement
☺ In case of Indian GAAP and US GAAP revaluation model is prohibited where as the same can be adopted in IFRS if active market exists.
Saturday, November 21, 2009
IFRS vs US GAAP vs Indian GAAP
17
(Contd…)
☺Amortisation
☺ In case of Indian GAAP there is no concept of indefinite useful life and there is a rebuttable presumption that the useful life of intangible assets will not exceed 10 years but the same does not apply in case of IFRS and US GAAP. In IFRS and US GAAP there is no threshold of 10 years life and assets can have indefinite life but the same needs to be tested at least once in a year for impairment. ☺Advertising Cost
☺ In case of IFRS and Indian GAAP advertising costs are expensed as incurred. There is no option of deferring the same up till the first time advertising takes place as in the case of US GAAP. ☺ In case of IFRS and Indian GAAP there is no provision of capitalizing direct response advertising cost as in the case of US GAAP. Saturday, November 21, 2009
18
9
Content ☺ Objective ☺ Scope ☺ Definition of Intangible Assets ☺ Conditions for Recognition ☺ Cost of Intangible Assets ☺ Internally Generated Intangible Assets ☺ Amortisation of Intangible Assets ☺ Disclosure of Intangible Assets ☺ Comparison between IFRS, US GAAP and Indian GAAP
Saturday, November 21, 2009
2
1
Objective
Prescribe the ing treatment for Intangible Assets which are not dealt with specifically in other ing Standard.
Saturday, November 21, 2009
3
Scope Applies to all enterprises in ing for intangible assets, except for ☺ Intangible assets covered by other ing standard ☺ Financial assets ☺ Mineral rights and expenditure on exploration ☺ Intangible assets arising in Insurance Company from contract with policy
holders ☺ Expenditure in respect of termination benefits (AS 15) ☺ Deferred tax assets (AS 22) ☺ Goodwill arising on Amalgamation / Consolidation (AS 14 and 21) ☺ Tangible assets held for sale (AS 2) ☺ Lease (AS 19) ☺ ing issue of specialised nature – e.g. discount / in relation
to borrowing, share issue expenses, discount on issue of shares etc. Saturday, November 21, 2009
4
2
Definition of Intangible Assets Intangible assets is: ☺ Identifiable non monetary assets ☺ Without physical substance ☺ Held for use in production or supply of goods or services Examples: ☺ Licenses
☺ Franchises
☺ Intellectual property rights
☺ Mortgage services rights
☺ Brand names, publishing titles
☺ Import quotas
☺ Computer software
☺ Customer supplier relationships
☺ Patents, copy rights
☺ Customer loyalty
☺ Motion picture licenses
☺ Market share and marketing right
☺ Customers lists
☺ Goodwill
Saturday, November 21, 2009
5
Conditions for Recognition Identifiability
☺Distinguishable from goodwill. ☺Enterprise
can rent, sale, exchange or distribute the future economic benefits from assets without disposing the same.
☺Separability is not necessary condition if
future economic benefits are separately identifiable. Control
☺Power to obtain future economic benefits. ☺Legal rights over the use of assets.
Future economic benefits
Saturday, November 21, 2009
☺Revenue, cost savings or other benefits
flowing from the assets.
6
3
Cost of Intangible Assets... Recognise if, and only if, ☺ Probability of flow of future economic benefits ☺ Cost can be reliably measured
Intangible Assets should be recognised only at cost Separate acquisition ☺ Recognise at cost of acquisition ☺ Cost of acquisition includes:
☺ Purchase price (net of any discounts, rebates etc) ☺ Non recoverable import duties and other taxes ☺ Direct expenses to make assets ready for intended use Saturday, November 21, 2009
Cost of Intangible Assets…
7
(contd…)
Acquisition as part of Amalgamation (AS 14) ☺ Amalgamation in nature of purchase
☺ Recognise at cost (i.e. at fair value) if consideration allocated to individual assets and liabilities based on fair value as on the date of amalgamation. ☺ Forms part of goodwill, If cost (fair value) can not be measured reliably. ☺ If no active market exists, restrict cost to an amount that does not create or increase capital reserve ☺ Amalgamation in Nature of Merger
☺ Recognise at book Value. (of transferor company) Acquisition by way of Government Grant ☺ ed at acquisition value or nominal value as applicable (AS 12).
Exchange of assets / Shares or Securities ☺ ed at its Fair value or of the securities issued, whichever is more clearly
evident (AS 10). Saturday, November 21, 2009
8
4
Internally Generated Intangible Assets… Goodwill ☺Not to be recognised as Intangible Asset as;
☺ Not an identifiable resource controlled by the entity ☺ Cost can not be measured reliably. ☺Difference between the Market value and carrying amount of entity
cannot be considered as cost of intangible assets as these difference are due to range of factors that affect the value of entity and are not in control of entity. ☺Internally generated brands, mastheads, publishing titles, customer lists
and items similar in substance should not be recognised as Intangible Assets as expenditure on these cannot be distinguished from the cost of developing the business as a whole Saturday, November 21, 2009
Internally Generated Intangible Assets...
9
(Contd…)
Others Internal generation of Intangible Assets classified into two phases: ☺ Research Phase
Recognise expenditure incurred during Research phase as an expense, when incurred as probability of future economic benefits not demonstrable. ☺ Development Phase
Recognise Intangible Assets if entity can demonstrate all the following conditions: ☺ Technical feasibility to complete the Intangible Assets so that it will be available for use. ☺ Intention and Availability of adequate technical, financial and other resources to complete the assets ☺ Ability to use / sell it. ☺ Demonstration of probable future economic benefits. ☺ Ability to measure reliably the expenditure attributable to Intangible Assets. Saturday, November 21, 2009
10
5
Internally Generated Intangible Assets...
(Contd…)
Cost: ☺ Cost of Internally generated Intangible Assets is calculated from the time when the Intangible Assets first meet the recognition criteria till the asset becomes ready for use. ☺ Cost comprises: ☺ Directly attributable cost such as, ☺ Expenditure on materials / services. ☺ Salary, wages and other employee related cost of personnel directly engaged in generating the assets. ☺ Any other expenditure such as registration fees, amortisation of patents and licenses etc. ☺ Overhead cost allocated on reasonable basis e.g. depreciation, borrowing cost etc. ☺ Cost does not include ☺ Selling, istrative and other general overheads. ☺ Initial operating loss. ☺ Expenditure on training staff to operate the asset.
Saturday, November 21, 2009
Internally Generated Intangible Assets...
11
(Contd…)
☺Past expenses should not be recognised as an asset. ☺Subsequent expenditure incurred on Intangible Asset should be recognise as expenditure unless; ☺ It has increased the future economic benefits of the Intangible Assets; and ☺ The expenditure can be measured and attributed to the assets reliably.
☺The Intangible assets should be carried at cost less any accumulated amortisation / impairment.
Saturday, November 21, 2009
12
6
Amortisation… Period ☺ Amortise over the best estimated useful life of the asset. ☺ Rebuttable presumption is that useful life can not exceed more than 10 years. ☺ Persuasive evidence required to justify useful life of more than 10 years. ☺ Amortisation period of more than 10 years requires: ☺ Annual impairment review ☺ Disclosure for reasons for rebuttable presumption and factors for determining useful life. ☺ In case of assets controlled through legal rights, useful life not to exceed the period of legal rights unless; ☺ Legal rights are renewable; and ☺ Renewal is virtually certain.
Saturday, November 21, 2009
Amortisation…
13
(Contd…)
Method of amortisation ☺ Unit Production Method, Straight Line Method or Reducing Balance Method. ☺ Straight Line Method considered as most appropriate. ☺ Residual value assumed to be of Zero, unless there is a commitment of purchase
or active market for sale. ☺ Residual Value determined at initial recognition and cannot be subsequently
increased for changes in prices or value. ☺ Amortisation period and method needs to be reviewed atleast at each financial
year end. ☺ Annual impairment review required for assets not available for use.
Saturday, November 21, 2009
14
7
Disclosure Requirement Disclose for each class & separately for internally generated and others: ☺ Useful lives or amortisation rate; ☺ Amortisation method; ☺ Gross carrying amount & accumulated amortisation ☺ Reconciliation of carrying amount showing: ☺ Additions/ retirement and disposals; ☺ Impairment losses recognised/ reversed, if any ☺ Amortisation recognised ☺ Other changes in the carrying amount. ☺ Changes in ing policy as per AS 5 ☺ Where useful life is more than ten years, the reasons there of ☺ Description, carrying amount and remaining period for an Intangible Assets of
material amount. ☺ Details of Intangible Assets that are pledged or have other restrictions. ☺ Commitments for acquisition of Intangible Assets. ☺ Research and Development expenses recognised as expenses. ☺ The entity is encouraged to give description of fully amortised Intangible Assets,
still in use. Saturday, November 21, 2009
15
IFRS vs US GAAP vs Indian GAAP Recognition Criteria ☺ Separately Acquired Intangibles
☺ Same in all the three frameworks ☺ Internally Generated Intangibles
☺ Same in case of Indian GAAP and IFRS where as in US GAAP recognition of internally generated intangible asset is rare. As both research and development cost needs to be expensed as incurred unless addressed by separate standard. ☺ Development costs related to computer software developed for external use are
capitalized once technological feasibility is established and capitlization ceases when the product is available for general release to customers. In the case of software developed for internal use, only those costs incurred during the application development stage (as defined in SOP 98-1 ing for the Costs of Computer Software Develop or Obtained for Internal Use) may be capitalized.
Saturday, November 21, 2009
16
8
IFRS vs US GAAP vs Indian GAAP
(Contd…)
Measurement ☺Separately Acquired Intangibles
☺ Same in all the three frameworks ☺Internally Generated Intangibles
☺ Same in case of Indian GAAP and IFRS where as in case of US GAAP development costs are expensed as incurred unless addressed by a separate standard. Under US GAAP costs of internally developing, maintaining and restoring intangible assets that are not specifically identifiable and that have indeterminable lives, or that are inherent in a continuing business and related to entity as a whole, are recognized as an expense when incurred. ☺Subsequent Measurement
☺ In case of Indian GAAP and US GAAP revaluation model is prohibited where as the same can be adopted in IFRS if active market exists.
Saturday, November 21, 2009
IFRS vs US GAAP vs Indian GAAP
17
(Contd…)
☺Amortisation
☺ In case of Indian GAAP there is no concept of indefinite useful life and there is a rebuttable presumption that the useful life of intangible assets will not exceed 10 years but the same does not apply in case of IFRS and US GAAP. In IFRS and US GAAP there is no threshold of 10 years life and assets can have indefinite life but the same needs to be tested at least once in a year for impairment. ☺Advertising Cost
☺ In case of IFRS and Indian GAAP advertising costs are expensed as incurred. There is no option of deferring the same up till the first time advertising takes place as in the case of US GAAP. ☺ In case of IFRS and Indian GAAP there is no provision of capitalizing direct response advertising cost as in the case of US GAAP. Saturday, November 21, 2009
18
9
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