Topic 8:

Intangibles
MFRS 138
 Definition
 Intangible but not assets
 Recognition criteria
 Initial costs
 Initial measurement
 Subsequent measurement
 Accounting treatment of R&D
 Impaired intangible assets
 Relevant entries
 Disclosure requirements

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 To prescribe the accounting treatment for
intangible assets that are not dealt with
specifically in another standard.
 Recognise an intangible asset if and only if,
specified criteria are met
 How to measure the Carrying Amount of
intangible assets and requires specified
dislosures about intangible assets

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An asset- a resource: a) controlled by an entity
as a result of past events and b)from which
future economic benefits are expected to flow to
the entity
An intangible asset-an identifiable non-monetary
asset without physical substance
Amortisation- the systematic allocation of the
depreciable amount of an intangible asset over
its useful life

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 Computer software, patents, copyrights, motion
picture films, customer lists, mortgage servicing
rights, fishing licensed, import quotas,
franchises, customer or supplier relationships,
customer loyalty, market share and marketing
rights
 Shall not be recognised as intangible assets:
◦ Internally generated goodwill (not identifiable
resources)
◦ Internally generated brands, mastheads, publishing
titles, customer lists and items similar in substance
(cannot be distinguished from the cost of developing
◦ business as a whole)
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 Brand names
 Mastheads and publishing titles
 Computer software
 Licences and franchises
 Copyrights, patents and other industrial
property rights, service and operating rights
 Recipes, formulae, models, designs and
prototypes
 Intangible assets under development

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1. Identifiability

2. Control

3. Probable future economic benefits of the asset

will flow to the company

4. The cost of the asset can be measured reliably

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An asset meets the IDENTIFIABILITY criterion
in the definition of an intangible asset when
it:

Is separable, i.e. is capable of being

separated/ divided from the entity and sold,
transferred, licensed, rented or exchanged,
either individually or together with a related
contract, asset or liability or
 arises from contractual/ legal rights,
regardless of whether those rights are
transferable/ separable from the entity/ from
other rights and obligations
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An entity controls an asset if the entity has the

1) power to obtain the future economic benefits

flowing from the underlying resource and
2) To restrict the access of others to those
benefits

Capacity to control normally stem from legal

rights enforceable in a court of law

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 May include revenue from the sale of
products/ services, cost savings or other
benefits resulting from the use of the asset

 Ex: use of intellectual property in a

production process may reduce future
production costs

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 Purchase price (including import duties, non-
refundable purchase taxes, - trade discounts
& rebates)

 Any directly attributable cost of preparing the

asset for its intended use (ex: cost of
employee benefits, professional fees, cost of
testing)

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Not part of the cost:
 Costs of introducing a new product/ service
(costs of advertising and promotional activities)
 Cost of conducting business in a new location/
wt a new class of customer (including cost of
staff training)
 Administration and other general overhead cost

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 Recognised when it meets:

◦ 1. the definition of an intangible asset and

◦ 2. the recognition criteria i. probable future

economic benefits flow to the entity ii.cost can be
measured reliably

❑ Measured at COST

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 The company can either use: cost model or
revaluation model
 Cost model – has a finite useful life-carried at
cost less accumulated amortisation and any
accumulated impairment losses (amortised
systematically over the finite useful life)

 Revaluation model-shown at revalued amount

which is its FV less any subsequent accumulated
amortisation and any subsequent impairment
losses
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 Fair value of an IA is
best measured by  Revaluation model is not
reference to an active allowed for IA that: have
market. not previously been
recognised or initially
 if there is no active recognised at amounts
market, use cost model other than cost
 Disappearence of an
active market may
indicate that IA is
impaired

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Research- original and planned investigation
undertaken with the prospect of gaining new
scientific or technical knowledge and
understanding

Development-the application of research

findings/ other knowledge to a plan or design for
the production of new or substantially improved
materials, devices, products, processes, systems
or services before the start of commercial
production or use.
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Example of research activities:
◦ activities aimed at obtaining new knowledge
◦ the search for, evaluation and final selection of,
applications of research findings or other knowledge

 Example of development activities:

◦ The design, construction and testing of pre-
production or pre-use prototypes and models
◦ The design of tools, jigs, moulds and dies involving
new technologies

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 Research Development

 No intangible asset Intangible asset recognised

shall be recognised if ALL:
➢Technical feasibility to complete
➢Intention to complete
 Expenditure incurred
➢Ability to use/ sell
recognised as an
➢Ability to generate probable
expense in the SoP/L future economic benefit
when it is incurred ➢Availability of resources
(technical, financial) to complete
the development
➢Ability to measure reliably the
expenditure

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 Research Development

 An entity cannot ➢An entity can identify an

demonstrate that an intangible asset and
intangible asset exists demonstrate that the asset
that will generate will generate probable
probable future future economic benefits.
economic benefits
➢Further advanced than the
research phase

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Research Development

➢Capitalised ALL cost incurred

from the date the IA first meet
the criteria
➢costs= all directly atttributable
costs necessary to create,
produce and prepare an asset
for intended use
➢Ex: cost of materials/ services
consumed, personnel costs
(salaries, wages), fees to
register a legal rights,
amortisation of patents and
licences used to generate the IA,
depreciation expenses of PPE
related to development stage.
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 Year 2010 2011 2012
Situation 1 Research cost Development cost Development cost
RM80,000 RM110,000 RM200,000
Do not meet all 6 Meet all 6 criteria
criteria
=expensed-off =expensed-off =capitalised RM200k
Situation 2 Research cost Development cost Development cost
RM80,000 RM110,000 RM200,000
Meet all 6 criteria Do not meet all 6
criteria
=expensed-off =capitalisedRM110k =expensed off
RM310k (200k+110k)

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 Cost model
Dr Intangible asset
Cr Bank/ account payable
Dr SoP/L- amortisation expense
Cr Accumulated amortisation
Revaluation model
Dr Intangible asset
Cr Bank/ account payable
Dr SoP/L- amortisation expense
Cr Accumulated amortisation
Dr Accumulated Amortisation
Cr Intangible asset
FIRST TIME REVALUATION
Dr Intangible asset
Cr ARR (if surplus on revaluation) OR
Dr SoP&L (if deficit on revaluation)
Cr Intangible Asset
SECOND TIME REVALUATION-deficit
Dr ARR (if surplus previous year, up to the
available balance in ARR) OR
Dr SoP&L (deficit on revaluation)
Cr Intangible assets
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 Revaluation model
SECOND TIME REVALUATION – surplus

Dr Intangible assets
Cr SoP&L (if deficit in the previous year,
up to the maximum amount
charge in the previous year SoP/L)
Cr ARR

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Disclose each class of intangible assets,
distinguishing between internally generated and
other intangible:
◦ Whether the useful lives are indefinite/ finite, and if
finite, the useful lives or the amortisation rates used
◦ The amortisation methods used for intangible assets
with finite useful lives
◦ The gross carrying amount and any accumulated
amortisation (aggregated wt accumulated
impairment losses) at the beginning and end of the
period
◦ The line item (s) of the IS in which any amortisation
of intangible assets is included
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A reconciliation of the carrying amount at the
beginning and end of the period showing:
 Additions, indicating separately those from
internal development, those acquired
separately, and those acquired through
business combinations
 Assets classified as held for sale or included in
a disposal group classified as held for sale in
accordance with FRS2 and other disposals
 Increases/ decreases during the period
resulting from revaluations
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