- Capitalizing Vs. Expensing Costs
- Financial Reporting of Intangible Assets
- Depreciation Methods for Property, Plant, and Equipment (PPE)
- Impact of Depreciation Methods on Financial Statements
- Depreciation – Important Points
- Amortization of Intangible Assets
- Revaluation Model for Fixed Assets
- Impairment of Long-lived Assets
- Impact of Asset Impairment
- Derecognition of PPE and Intangible Assets
- Disclosures Related to PPE and Intangible Assets
- Financial Reporting of Investment Property Vs. PPE
Financial Reporting of Intangible Assets
Intangible assets are those assets that have no physical substance such as patents, trademarks, franchises, and copyrights.
Intangible assets can have finite lives or indefinite lives. For assets with finite lives, the cost is amortized over the life of the asset. For assets with indefinite lives, there is no amortization. Instead a test of impairment is conducted at least once a year to check if the assets are impaired. If there is impairment, then the value of the asset is reduced and the reduction is recognized as a loss in income statement.
IFRS defines intangible assets as 'identifiable non-monetary assets without physical substance'. In order to be an identifiable intangible asset, an asset must meet the following three criteria:
- Asset must be identifiable (Capable of being separated from the firm or arise from a contractual or legal right)
- Asset is controlled by the firm.
- Asset is capable of generating future economic benefit.
In addition, there are two recognition criteria: 1) It is probable that the expected future economic benefits of the assets will flow to the company. 1) The cost of the asset can be reliably measured.
The intangible assets are accounted for depending on how they are acquired. Intangible assets can be:
- Internally developed
- Acquired in a business combination
Internally Developed Assets
All costs to create intangible assets are expensed as incurred. A few exceptions are research and development costs and software development costs. The treatment of these exceptions is summarized below:
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