Recognition requirement
ACF 212 coursework
a
As for the recognition requirement of intangible assets, we firstly make the different types of intangible assets. We divide it into three parts, separately acquired intangibles, intangibles acquired as part of a business combination and the internally generated intangibles. And then we discuss them respectively.According to the definition of IAS 38, ‘identifiable, non-monetary assets without physical substance’, we can know that three types of intangible assets should meet the definition first. So, the basic criteria are the intangible assets are supposed to be distinguished from the entity and then the intangible assets should arise from own legal rights. These two criteria are suitable for all types of intangibles.
And to be more specific, the recognition requirement for each type will be discussed separately.
As for the separately acquired intangibles, the company is willing to pay for this means that they are expected towards the future benefit, which is perfectly satisfied with one of the recognition requirements. Moreover, the company gets the price of the intangibles which can demonstrate a significant part of intangibles value thus the second requirement satisfied as well. And then the recognition of cost is the sum of the payment plus the directly attributed cost. Thus, the recognition requirement of the first one is quite simple.
Regarding the intangibles acquired as part of a business combination, the basic recognition criteria are the same as the first one, so the only difference between them is the cost determination. The first one is independently buying while this one is like an attachment to purchasing a company. In this case, we cannot determine the cost of purchasing price so that we use fair value to recognize the cost. Thus, the fair value of intangibles is the cost at the acquisition date.
However, as for the last type of intangibles, there exist something special. The basic recognition requirement there is difficult to access. On the one hand, the future economic benefit is difficult to determine in this situation as the expectation cannot reflect useful information. And the cost there is much more hard to calculate, we cannot distinguish whether the cost is in its own right way. So facing this problem, the IAS 38 states that, in order to help us recognize the internally generated intangibles, we just classify them into two categories, the research phase, and the development phase. These two phrases mean the future benefits can possibly from these two aspects. As for the research phase, no intangible asset will be recognized due to the lack of future economic benefit possibility so that all research costs will be classified into expense which only shows in the income statement. Furthermore, the development phase is more possible to be recognized even if they provide several strict conditions that the IAS 38 states. So, the cost of the development phase is the directly attributable cost.
By comparison, the biggest difference between these three types of intangibles is the requirement they meet. The first two cases perfectly meet the criteria while the last one is less closed to the requirement. And then they have different cost measurement method and the cost is demonstrated in different ways.
b