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S 8 Intangible Assets

IAS 8, Intangible Assets, was approved by the IASC Board in July 18 and became operative for annual financial statements covering periods beginning on or after 1 July 1.

IAS 8 supersedes




· IAS 4, Depreciation Accounting, with respect to the amortisation (depreciation) of intangible assets; and

· IAS , Research and Development Costs.

In 18, IAS Financial Instruments Recognition and Measurement, amended a paragraph of IAS 8 to replace the reference to IAS 5, Accounting for Investments, by reference to IAS .

One SIC Interpretation relates to IAS 8

· SIC 6 Costs of Modifying Existing Software.

Summary of IAS 8

IAS 8 applies to all intangible assets that are not specifically dealt with in other International Accounting Standards. It applies, among other things, to expenditures on

· advertising,

· training,

· start-up, and

· research and development (R&D) activities.

IAS 8 supersedes IAS , Research and Development Costs. IAS 8 does not apply to financial assets, insurance contracts, mineral rights and the exploration for and extraction of minerals and similar non-regenerative resources. Investments in, and awareness of the importance of, intangible assets have increased significantly in the last two decades.

The main features of IAS 8 are

· an intangible asset should be recognised initially, at cost, in the financial statements, if, and only if

(a) the asset meets the definition of an intangible asset. Particularly, there should be an identifiable asset that is controlled and clearly distinguishable from an enterprises goodwill;

(b) it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise; and

(c) the cost of the asset can be measured reliably.

This requirement applies whether an intangible asset is acquired externally or generated internally. IAS 8 also includes additional recognition criteria for internally generated intangible assets;

· if an intangible item does not meet both the definition, and the criteria for the recognition, of an intangible asset, IAS 8 requires the expenditure on this item to be recognised as an expense when it is incurred. An enterprise is not permitted to include this expenditure in the cost of an intangible asset at a later date;

· it follows from the recognition criteria that all expenditure on research should be recognised as an expense. The same treatment applies to start-up costs, training costs and advertising costs. IAS 8 also specifically prohibits the recognition as assets of internally generated goodwill, brands, mastheads, publishing titles, customer lists and items similar in substance. However, some development expenditure may result in the recognition of an intangible asset (for example, some internally developed computer software);

· in the case of a business combination that is an acquisition, IAS 8 builds on IAS Business Combinations, to emphasise that if an intangible item does not meet both the definition and the criteria for the recognition for an intangible asset, the expenditure for this item (included in the cost of acquisition) should form part of the amount attributed to goodwill at the date of acquisition. This means that, among other things, unlike current practices in certain countries, purchased R&D-in-process should not be recognised as an expense immediately at the date of acquisition but it should be recognised as part of the goodwill recognised at the date of acquisition and amortised under IAS , unless it meets the criteria for separate recognition as an intangible asset;

· after initial recognition in the financial statements, an intangible asset should be measured under one of the following two treatments

(a) benchmark treatment historical cost less any amortisation and impairment losses; or

(b) allowed alternative treatment revalued amount (based on fair value) less any subsequent amortisation and impairment losses. The main difference from the treatment for revaluations of property, plant and equipment under IAS 16 is that revaluations for intangible assets are permitted only if fair value can be determined by reference to an active market. Active markets are expected to be rare for intangible assets;

· intangible assets should be amortised over the best estimate of their useful life. IAS 8 does not permit an enterprise to assign an infinite useful life to an intangible asset. It includes a rebuttable presumption that the useful life of an intangible asset will not exceed 0 years from the date when the asset is available for use. IAS 8 acknowledges that, in rare cases, there may be persuasive evidence that the useful life of an intangible asset will exceed 0 years. In these cases, an enterprise should amortise the intangible asset over the best estimate of its useful life and

(a) test the intangible asset for impairment at least annually in accordance with IAS 6 Impairment of Assets; and

(b) disclose the reasons why the presumption that the useful life of an intangible asset will not exceed 0 years is rebutted and also the factor(s) that played a significant role in determining the useful life of the asset;

· required disclosures on intangible assets will enable users to understand, among other things, the types of intangible assets that are recognised in the financial statements and the movements in their carrying amount (book value) during the year. IAS 8 also requires disclosure of the amount of research and development expenditure recognised as an expense during the year; and

· IAS 8 is operative for annual accounting periods beginning on or after 1 July 1. IAS 8 includes transitional provisions that clarify when the Standard should be applied retrospectively and when it should be applied prospectively.

To avoid creating opportunities for accounting arbitrage in an acquisition by recognising an intangible asset that is similar in nature to goodwill (such as brands and mastheads) as goodwill rather than an intangible asset (or vice versa), the amortisation requirements for goodwill in IAS Business Combinations are consistent with those of IAS 8.

IAS 8 is included in

The IASB Framework is a conceptual accounting framework that sets out the concepts that underlie the preparation and presentation of financial statements for external users. It was approved in 18. The IASB Framework assists the IASB

· in the development of future International Accounting Standards and in its review of existing International Accounting Standards; and

· in promoting the harmonisation of regulations, accounting standards and procedures relating to the presentation of financial statements by providing a basis for reducing the number of alternative accounting treatments permitted by International Accounting Standards.

In addition, the Framework may assist

· preparers of financial statements in applying International Accounting Standards and in dealing with topics that have yet to form the subject of an International Accounting Standard;

· auditors in forming an opinion as to whether financial statements conform with International Accounting Standards;

· users of financial statements in interpreting the information contained in financial statements prepared in conformity with International Accounting Standards; and

· those who are interested in the work of IASB, providing them with information about its approach to the formulation of accounting standards.

The Framework is not an International Accounting Standard and does not define standards for any particular measurement or disclosure issue.

In a limited number of cases there may be a conflict between the Framework and a requirement within an International Accounting Standard. In those cases where there is a conflict, the requirements of the International Accounting Standard prevail over those of the Framework.

Standards. International Accounting Standards (IAS) were issued by the IASC from 17 to 000. The IASB replaced the IASC in 001. Since then, the IASB has amended some IAS, has proposed to amend other IAS, has proposed to replace some IAS with new International Financial Reporting Standards (IFRS), and has proposed certain new IFRS on topics for which there was no previous IAS. Through committees, both the IASC and the IASB also issue Interpretations of Standards. Financial statements may not be described as complying with International Accounting Standards unless they comply with all of the requirements of each applicable Standard and each applicable Interpretation

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