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Thread: 25 - Indian Accounting Standard (Ind AS) 38 - Earlier Accounting standard - (26) - Intangible Assets

  1. #11
    IND-AS
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    Thumbs up Acquisition as part of a business combination of Indian Accounting Standard (Ind AS) 38 - Earlier Accounting standard - (26) - Intangible Assets

    Acquisition as part of a business combination of Indian Accounting Standard (Ind AS) 38 - Earlier Accounting standard - (26)

    Intangible Assets


    Acquisition as part of a business combination

    33. In accordance with Ind AS 103 Business Combinations, if an intangible asset is acquired in a business combination, the cost of that intangible asset is its fair value at the acquisition date. The fair value of an intangible asset will reflect expectations about the probability that the expected future economic benefits embodied in the asset will flow to the entity. In other words, the entity expects there to be an inflow of economic benefit s, even if there is uncertainty about the timing or the amount of the inflow. Therefore, the probability recognition criterion in paragraph 21(a) is always considered to be satisfied for intangible assets acquired in business combinations. If an asset acquired in a business combination is separable or arises from contractual or other legal rights, sufficient information exists to measure reliably the fair value of the asset. Thus, the reliable measurement criterion in paragraph 21(b) is always considered to be satisfied for intangible assets acquired in business combinations.

    34. In accordance with this Standard and Ind AS 103, an acquirer recognises at the acquisition date, separately from goodwill, an intangible asset of the acquiree, irrespective of whether the asset had been recognised by the acquiree before the business combination. This means that the acquirer recognises as an asset separately from goodwill an in-process research and development project of the acquiree if the project meets the definition of an intangible asset. An acquiree’s in-process research and development project meets the definition of an intangible asset when it:

    (a) meets the definition of an asset; and
    (b) is identifiable, ie is separable or arises from contractual or other legal rights.


  2. #12
    IND-AS
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    Thumbs up Measuring the fair value of an intangible asset acquired in a business combination of Indian Accounting Standard (Ind AS) 38

    Measuring the fair value of an intangible asset acquired in a business combination of Indian Accounting Standard (Ind AS) 38 - Earlier Accounting standard - (26)

    Intangible Assets


    Measuring the fair value of an intangible asset acquired in a business combination

    35. If an intangible asset acquired in a business combination is separable or arises from contractual or other legal rights, sufficient information exists to measure reliably the fair value of the asset. When, for the estimates used to measure an intangible asset’s fair value, there is a range of possible outcomes with different probabilities, that uncertainty enters into the measurement of the asset’s fair value.

    36. An intangible asset acquired in a business combination might be separable, but only together with a related contract, identifiable asset or liability. In such cases, the acquirer recognises the intangible asset separately from goodwill, but together with the related item.

    37. The acquirer may recognise a group of complementary intangible assets as a single asset provided the individual assets have similar useful lives. For example, the terms ‘brand’ and ‘brand name’ are often used as synonym for trademarks and other marks. However, the former are general marketing terms that are typically used to refer to a group of complimentary assets such as a trademark (or service mark) and its related trade name, formulas, recipes and technological expertise.

    38. [Refer to Appendix 1]

    39. Quoted market prices in an active market provide the most reliable estimate of the fair value of an intangible asset (see also paragraph 78). The appropriate market price is usually the current bid price. If current bid prices are unavailable, the price of the most recent similar transaction may provide a basis from which to estimate fair value, provided that there has not been a significant change in economic circumstances between the transaction date and the date at which the asset’s fair value is estimated.

    40. If no active market exists for an intangible asset, its fair value is the amount that the entity would have paid for the asset, at the acquisition date, in an arm’s length transaction between knowledgeable and willing parties, on the basis of the best information available. In determining this amount, an entity considers the outcome of recent transactions for similar assets. For example, an entity may apply multiples reflecting current market transactions to factors that drive the profitability of the asset (such as revenue, operating profit or earnings before interest, tax, depreciation and amortisation).

    41. Entities that are involved in the purchase and sale of intangible assets may have developed techniques for estimating their fair values indirectly. These techniques may be used for initial measurement of an intangible asset acquired in a business combination if their objective is to estimate fair value and if they reflect current transactions and practices in the industry to which the asset belongs.
    These techniques include, for example:

    (a) discounting estimated future net cash flows from the asset; or
    (b) estimating the costs the entity avoids by owning the intangible asset and not needing:

    (i) to license it from another party in an arm’s length transaction (as in the ‘relief from royalty’ approach; using discounted net cash flows );or
    (ii) to recreate or replace it (as in the cost approach).


  3. #13
    IND-AS
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    Thumbs up Subsequent expenditure on an acquired in -process research and development project of Indian Accounting Standard (Ind AS) 38

    Subsequent expenditure on an acquired in -process research and development project of Indian Accounting Standard (Ind AS) 38 - Earlier Accounting standard - (26)

    Intangible Assets


    Subsequent expenditure on an acquired in -process research and development project

    42. Research or development expenditure that:

    (a) relates to an in-process research or development project acquired separately or in a business combination and recognised as an intangible asset; and
    (b) is incurred after the acquisition of that project shall be accounted for in accordance with paragraphs 54 –62.

    43. Applying the requirements in paragraphs 54 –62 means that subsequent expenditure on an in-process research or development project acquired separately or in a business combination and recognised as an intangible asset is:

    (a) recognised as an expense when incurred if it is research expenditure;
    (b) recognised as an expense when incurred if it is development expenditure that does not satisfy the criteria for recognition as an intangible asset in paragraph 57; and
    (c) added to the carrying amount of the acquired in -process research or development project if it is development expenditure that satisfies the recognition criteria in paragraph 57.


  4. #14
    IND-AS
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    Thumbs up Acquisition by way of a government grant of Indian Accounting Standard (Ind AS) 38 - Earlier Accounting standard - (26) - Intangible Assets

    Acquisition by way of a government grant of Indian Accounting Standard (Ind AS) 38 - Earlier Accounting standard - (26)

    Intangible Assets


    Acquisition by way of a government grant

    44. In some cases, an intangible asset may be acquired free of charge, or for nominal consideration, by way of a government grant. This may happen when a government transfers or allocates to an entity intangible assets such as airport landing rights, licences to operate radio or television stations, import licences or quotas or rights to access other restricted resources. In accordance with Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance, an entity recognises both the intangible asset and the grant initially at fair value.


  5. #15
    IND-AS
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    Thumbs up Exchanges of assets of Indian Accounting Standard (Ind AS) 38 - Earlier Accounting standard - (26) - Intangible Assets

    Exchanges of assets of Indian Accounting Standard (Ind AS) 38 - Earlier Accounting standard - (26)

    Intangible Assets


    Exchanges of assets

    45. One or more intangible assets may be acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non -monetary assets. The following discussion refers simply to an exchange of one non -monetary asset for another, but it also applies to all exchanges described in the preceding sentence. The cost of such an intangible asset is measured at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. The acquired asset is measured in this way even if an entity cannot immediately derecognise the asset given up. If the acquired asset is not measured at fair value, its cost is measured at the carrying amount of the asset given up.

    46. An entity determines whether an exchange transaction has commercial substance by considering the extent to which its future cash flows are expected to change as a result of the transaction. An exchange transaction has commercial substance if:

    (a) the configuration (ie risk, timing and amount) of the cash flows of the asset received differs from the configuration of the cash flows of the asset transferred; or
    (b) the entity-specific value of the portion of the entity’s operations affected by the transaction changes as a result of the exchange ; and

    (c) the difference in (a) or (b) is significant relative to the fair value of the assets exchanged.

    For the purpose of determining whether an exchange transaction has commercial substance, the entity-specific value of the portion of the entity’s operations affected by the transaction shall reflect post -tax cash flows. The result of these analyses may be clear without an entity having to perform detailed calculations.

    47. Paragraph 21(b) specifies that a condition for the recognition of an intangible asset is that the cost of the asset can be measured reliably. The fair value of an intangible asset for which comparable market transactions do not exist is reliably measurable if (a) the variability in the range of reasonable fair value estimates is not significant for that asset or (b) the probabilities of the various estimates within the range can be reasonably assessed and used in estimating fair value. If an entity is able to determine reliably the fair value of either the asset received or the asset given up, then the fair value of the asset given up is used to measure cost unless the fair value of the asset received is more clearly evident.


  6. #16
    IND-AS
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    Thumbs up Internally generated goodwill of Indian Accounting Standard (Ind AS) 38 - Earlier Accounting standard - (26) - Intangible Assets

    Internally generated goodwill of Indian Accounting Standard (Ind AS) 38 - Earlier Accounting standard - (26)

    Intangible Assets



    Internally generated goodwill

    48. Internally generated goodwill shall not be recognised as an asset.

    49. In some cases, expenditure is incurred to generate future economic benefits, but it does not result in the creation of an intangible asset that meets the recognition criteria in this Standard. Such expenditure is often described as contributing to internally generated goodwill. Internally generated goodwill is not recognised as an asset because it is not an identifiable resource (ie it is not separable nor does it arise from contractual or other legal rights) controlled by the entity that can be measured reliably at cost.

    50. Differences between the market value of an entity and the carrying amount of its identifiable net assets at any time may capture a range of factors that affect the value of the entity. However, such differences do not represent the cost of intangible assets controlled by the entity.


  7. #17
    IND-AS
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    Thumbs up Internally generated intangible assets of Indian Accounting Standard (Ind AS) 38 - Earlier Accounting standard - (26) - Intangible Assets

    Internally generated intangible assets of Indian Accounting Standard (Ind AS) 38 - Earlier Accounting standard - (26)

    Intangible Assets


    Internally generated intangible assets

    51. It is sometimes difficult to assess whether an internally generated intangible asset qualifies for recognition because of problems in:

    (a) identifying whether and when there is an identifiable asset that will generate expected future economic benefits; and
    (b) determining the cost of the asset reliably. In some cases, the cost of generating an intangible asset internally cannot be distinguished from the cost of maintaining or enhancing the entity’s internally generated goodwill or of running day-to-day operations.

    Therefore, in addition to complying with the general requirements for the recognition and initial measurement of an intangible asset, an entity applies the requirements and guidance in paragraphs 5 2–67 to all internally generated intangible assets.

    52. To assess whether an internally generated intangible asset meets the criteria for recognition, an entity classifies the generation of the asset into:

    (a) a research phase; and
    (b) a development phase.

    Although the terms ‘research’ and ‘development’ are defined, the terms ‘research phase’ and ‘development phase’ have a broader meaning for the purpose of this Standard.

    53. If an entity cannot distinguish the research phase from the development phase of an internal project to create an intangible asset, the entity treats the expenditure on that project as if it were incurred in the research phase only.


  8. #18
    IND-AS
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    Thumbs up Research phase of Indian Accounting Standard (Ind AS) 38 - Earlier Accounting standard - (26) - Intangible Assets

    Research phase of Indian Accounting Standard (Ind AS) 38 - Earlier Accounting standard - (26)

    Intangible Assets


    Research phase

    54. No intangible asset arising from research (or from the research phase of an internal project) shall be recognised. Expenditure on research (or on the research phase of an internal project) shall be recognised as an expense when it is incurred.

    55. In the research phase of an internal project, an entity cannot demonstrate that an intangible asset exists that will generate probable future economic benefits. Therefore, this expenditure is recognised as an expense when it is incurred.

    56. Examples of research activities are:

    (a) activities aimed at obtaining new knowledge;
    (b) the search for, evaluation and final selection of, applications of research findings or other knowledge;
    (c) the search for alternatives for materials, devices, products, processes, systems or services; and
    (d) the formulation, design, evaluation and final selection of possible alternatives for new or improved materials, devices, products, processes, systems or services.



  9. #19
    IND-AS
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    Thumbs up Development phase of Indian Accounting Standard (Ind AS) 38 - Earlier Accounting standard - (26) - Intangible Assets

    Development phase of Indian Accounting Standard (Ind AS) 38 - Earlier Accounting standard - (26)

    Intangible Assets


    Development phase


    57. An intangible asset arising from development (or from the development phase of an internal project) shall be recognised if, and only if, an entity can demonstrate all of the following:

    (a) the technical feasibility of completing the intangible asset so that it will be available for use or sale.
    (b) its intention to complete the intangible asset and use or sell it.
    (c) its ability to use or sell the intangible asset.
    (d) how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.
    (e) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.
    (f) its ability to measure reliably the expenditure attributable to the intangible asset during its development.

    58. In the development phase of an internal project, an entity can, in some instances, identify an intangible asset and demonstrate that the asset will generate probable future economic benefits. This is because the development phase of a project is further advanced than the research phase.

    59. Examples of development activities are:

    (a) the design, construction and testing of pre -production or pre-use prototypes and models;
    (b) the design of tools, jigs, moulds and dies involving new technology;
    (c) the design, construction and operation of a pilot plant that is not of a scale economically feasible for commercial production; and
    (d) the design, construction and testing of a chosen alternative for new or improved materials, devices, products, processes, systems or services.

    60. To demonstrate how an intangible asset will generate probable future economic benefits, an entity assesses the future economic benefits to be received from the asset using the principles in Ind AS 36 Impairment of Assets. If the asset will generate economic benefits only in combination with other assets, the entity applies the concept of cash-generating units in Ind AS 36.

    61. Availability of resources to complete, use and obtain the benefits from an intangible asset can be demonstrated by, for example, a business plan showing the technical, financial and other resources needed and the entity’s ability to secure those resources. In some cases, an entity demonstrates the availability of external finance by obtaining a lender’s indication of its willingness to fund the plan.

    62. An entity’s costing systems can often measure reliably the cost of generating an intangible asset internally, such as salary and other expenditure incurred in securing copyrights or licences or developing computer software.

    63. Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall not be recognised as intangible assets.

    64. Expenditure on internally generated brands, mastheads, publishing titles, customer lists and items similar in substance cannot be dis tinguished from the cost of developing the business as a whole. Therefore, such items are not recognised as intangible assets.


  10. #20
    IND-AS
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    Thumbs up Cost of an internally generated intangible asset of Indian Accounting Standard (Ind AS) 38 - Earlier Accounting standard - (26) - Intangible Assets

    Cost of an internally generated intangible asset of Indian Accounting Standard (Ind AS) 38 - Earlier Accounting standard - (26)

    Intangible Assets


    Cost of an internally generated intangible asset

    65. The cost of an internally generated intangible asset for the purpose of paragraph 24 is the sum of expenditure incurred from the date when the intangible asset first meets the recognition criteria in paragraphs 21, 22 and 57. Paragraph 71 prohibits reinstatement of expenditure previously recognised as an expense.

    66. The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. Examples of directly attributable costs are:

    (a) costs of materials and services used or consumed in generating the intangible asset;
    (b) costs of employee benefits (as defined in Ind AS 19) arising from the generation of the intangible asset;
    (c) fees to register a legal right; and
    (d) amortisation of patents and licences that are use d to generate the intangible asset.

    Ind AS 23 specifies criteria for the recognition of interest as an element of the cost of an internally generated intangible asset.

    67. The following are not components of the cost of an internally generated intangible asset:

    (a) selling, administrative and other general overhead expenditure unless this expenditure can be directly attributed to preparing the asset for use;
    (b) identified inefficiencies and initial operating losses incurred before the asset achieves planned performance; and
    (c) expenditure on training staff to operate the asset.

    Example illustrating paragraph 65

    An entity is developing a new production process. During 20X5, expenditure incurred
    was Rs.1,000 , of which Rs.900 was incurred before 1 December 20X5 and Rs.100 was
    incurred between 1 December 20X5 and 31 December 20X5. The entity is able to
    demonstrate that, at 1 December 20X5, the production process met the criteria for
    recognition as an intangible asset. The recoverable amount of the know -how embodied
    in the process (including future cash outflows to complete the process before it is
    available for use) is estimated to be Rs.500.

    At the end of 20X5, the production process is recognised as an intangible asset at a cost of Rs.100 (expenditure incurred since the date when the recognition criteria were met, ie 1 December 20X5). The Rs.900 expenditure incurred before 1 December 20X5 is recognised as an expense because the recognition criteria were not met until 1 December 20X5. This expenditure does not form part of the cost of the production process recognised in the balance sheet.

    During 20X6, expenditure incurred is Rs.2,000. At the end of 20X6, the recoverable amount of the know-how embodied in the process (including future cash outflows to complete the process before it is available for use) is estimated to be Rs.1,900.

    At the end of 20X6, the cost of the production process is Rs.2,100 (Rs.100 expenditure recognised at the end of 20X5 plus Rs.2,000 expenditure recognised in 20X6). The entity recognises an impairment loss of Rs.200 to adjust the carrying amount of the process before impairment loss (Rs.2,100) to its recoverable amount (Rs.1,900). This impairment loss will be reversed in a subsequent period if the requirements for the reversal of an impairment loss in Ind AS 36 are met.


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