• An intangible asset is an identifiable non-monetary asset without physical substance.
• An intangible asset is identifiable if it is separable or arises from contractual or legal rights.
• An intangible asset acquired in a business combination is recognised separately from goodwill unless it arises from legal or contractual rights, transactions in similar assets are not seen and its fair value cannot be estimated without using immeasurable variables.
• Costs of internally generated intangible assets are split between those incurred during the research phase and those incurred in the development phase. Costs incurred during the research phase are expensed as incurred. Costs incurred in the development phase may be capitalised (an accounting policy choice) but only if certain conditions are met.
• Expenditure on internally generated brands and logos, start-up activities, training, advertising and promotion, relocation of the entity and internally generated goodwill is expensed as incurred.
• Other separately acquired intangibles are recognised in the balance sheet when it is probable that future economic benefits will flow to the entity and their cost or value can be measured reliably.
• Intangible assets are measured initially at cost, which is a valuation if they are acquired in a business combination, by way of government grant or by way of an exchange of non-monetary assets.
• Intangible assets are subsequently measured either at cost, or (if criteria are met) at fair value, less accumulated amortisation and impairment losses. Any revaluation gains or losses whilst the fair value remains above cost are recognised in other comprehensive income; gains or losses when fair value is below cost are recorded in the profit and loss account.
• All intangible assets are considered to have a finite useful life. The useful life is presumed to not exceed five years unless a reliable estimate of the useful life can be made.
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| Cutting through UK GAAP
vs previous UK GAAP
Applicable standards: SSAP 13, FRS 7, FRS 10, UITF 24, UITF 27, UITF 29, UITF 34
pUK18.1 The recognition criteria for intangible assets under FRS 10 are different from those in FRS 102:
• An item acquired in a business combination that would otherwise be an intangible asset but is not separable (i.e. it cannot be sold or transferred without disposing of a business of the entity) is accounted for as part of goodwill.
• If an intangible asset acquired as part of the acquisition of a business does not have a readily ascertainable market value (defined in a similar way to an active market), its fair value is limited to an amount that does not create or increase any negative goodwill arising on the acquisition.
pUK18.2 There is a rebuttable presumption that the useful economic lives of intangible assets are limited to a maximum of 20 years. This presumption can be rebutted only if the durability of the acquired business or intangible asset can be demonstrated and the goodwill or intangible asset is capable of continued measurement. In such cases, the useful economic life may be indefinite.
pUK18.3 Intangible assets are tested for impairment annually if they are amortised over a period longer than 20 years or are not amortised. A separate impairment test is carried out at the end of the first full year after their acquisition.
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18 Intangible assets other than goodwill |
138FRS 102
Section 18
Scope
18.1 Section 18 Intangible assets other than goodwill applies to the accounting for all intangible assets except:
• goodwill – see Section 19 Business combinations and goodwill;
• intangible assets held by an entity for sale in the ordinary course of business – see Section 13 Inventories and Section 23 Revenue;
• heritage assets – see Section 34 Specialised activities;
• deferred acquisition costs and other assets in the scope of FRS 103 Insurance contracts (once issued); and
• mineral rights and mineral reserves, such as oil, natural gas and similar non-regenerative resources – see Section 34 [FRS102.18.1,1A,3]
Definition
18.2 An intangible asset is an identifiable non-monetary asset without physical substance. Such an asset is identifiable when: (a) it is separable, i.e. capable of being separated or divided from the entity and sold, transferred, licensed, rented or
exchanged, either individually or together with a related contract, asset or liability; or
(b) it arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations. [FRS102.18.2]
Recognition
18.3 An intangible asset is recognised when it is probable that the entity will receive the expected future economic benefits attributable to the asset, and its cost or value can be measured reliably. [FRS102.18.4]
18.4 Management uses judgement and reasonable assumptions to assess the degree of certainty attached to expected future economic benefits attributable to an asset. More weight is given to external evidence. [FRS102.18.5,6] 18.5 When an intangible asset is acquired separately it is always considered probable that future economic benefits will
flow to the entity. [FRS102.18.7]
18.6 When acquired as part of a business combination an intangible asset’s fair value (see paragraph 11.25 of this publication for guidance) can usually be measured reliably and therefore the asset is recognised. However, an intangible asset acquired in a business combination is not recognised when it arises from legal or other contractual rights and: there is no history or evidence of exchange transactions for the same or similar assets; and otherwise estimating fair value would be dependent on immeasurable variables. [FRS102.18.8]
Initial measurement
18.7 Intangible assets are measured initially at cost. [FRS102.18.9] 18.8 The cost of an intangible asset is determined as follows:
• For a separately acquired intangible asset, cost comprises purchase price including import duties and non refundable purchase taxes but net of trade discounts and rebates, and any costs directly attributable to preparing the asset for its intended use. [FRS102.18.10]
• For an internally generated intangible asset, cost comprises the directly attributable costs incurred after a certain point in the project (see paragraphs 18.14 to 18.16 of this publication). [FRS102.18.10-10A]
• For an intangible asset acquired in a business combination, cost is the asset’s fair value at the acquisition date. [FRS102.18.11]
• For an intangible asset acquired by way of a grant, cost is the asset’s fair value on the date the grant is received or receivable. [FRS102.18.12]
• For an intangible asset acquired through an exchange of non-monetary assets, cost is the asset’s fair value unless the transaction lacks commercial substance or the fair value of both the asset(s) given up and the asset(s) received cannot be measured reliably. In that case, the carrying amount of the asset given up is used as the cost of the intangible asset acquired. [FRS102.18.13]
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