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treats its customers, the quality of its customer services etc. IFRS 3 states that internally generated
goodwill is never capitalised as it is hard to measure with reasonable certainty.
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Research and development costs IAS 38
Research - original and planned investigation carried out in order to gain new scientific or technical
knowledge
Accounting treatment - all expenditure on research costs must be expensed in the income
statement.
Debit Expenses (income statement)
Credit Bank (statement of financial position)
Development - once the research has been successful, development begins on a product or service
that will generate economic benefits in the future.
Accounting treatment - an intangible asset should only be created when the development phase
meets the strict criteria set out by IAS 38. If the criterion is not met, development expenditure is
expensed in the income statement.
Capitalisation journal:
Debit Intangible non current asse (statement of financial position)
Credit Bank (statement of financial position)
The criteria for capitalisation of development expenditure under IAS 38 (SECT)
S Separately and clearly defined project
E Expenditure is separately identifiable
C Commercially viable, and overall profit is expected
T Technically feasible, and resources exist to complete the project
Disposal or retirement of intangible assets - when an intangible asset is sold or is no longer used
by the organisation, it needs to be removed from the statement of financial position. The gain or
loss on disposal is calculated in the same way as for tangible assets as: sales proceeds less carrying
amount. The gain or loss is taken to the income statement.
Amortisation - Most intangible assets are expected to have a useful economic life of 20 years,
apart from purchased goodwill. This may not be the case for some assets. Amortisation is to be
charged on a systematic basis to reflect the use of the intangible asset. The amortisation is
calculated in the same way as depreciation and is charged to the income statement.
Impairment - under IAS 36, all intangible assets must be reviewed for impairment every year, this
means comparing their carrying value with the recoverable amount. The treatment of impairment
losses is same as for tangible assets.
Disclosures required by IAS 38 for each class of intangible asset
Reconciliation of the carrying amount at the beginning and the end of the period.
Useful life, amortisation rate and method.
Basis for determining that an intangible has an indefinite life.
Description and carrying amount of individually material intangible assets
Intangible assets acquired by way of government grants
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