Notes: ACCT 1A
❖ Intangible Assets
➢ An intangible asset is an identifiable non-monetary asset without physical
➢ It must meet the essential characteristic of an asset: i.e. control, future economic
benefits, past event/transaction, as well as the identifiable criterion:
➢ It is separable, that is, 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/liability; or
➢ Arises from a contractual or other legal right, regardless of whether those rights
are transferrable or separable from the entity or from other rights or obligations.
● E.g. patents, licences, copyrights, franchises, trademarks, etc.
● The definition excludes monetary items (i.e. financial instruments) e.g. shares are not
● An intangible asset shall be measured initially at cost. Elements of cost include:
➢ Purchase price (including import duties and non-refundable purchase taxes after
deducting trade discounts and rebates);
➢ Any directly attributable costs of preparing the asset for its intended use;
➢ For internally generated intangibles, the cost is the sum of expenditure incurred
from the date when the intangible asset first meet the recognition criteria (i.e.
from the development phase).
● For most intangible assets, only the cost model can be used. An active market, which
rarely exists due to the uniqueness of intangible assets, is needed to determine its fair
value for the revaluation model.
❖ Acquisition vs Internally Generated
➢ Separate acquisition: The intangible asset is purchased from outside the
❖ It will always satisfy the probability recognition criteria. It is thus an asset on the
➢ Internally generated: The intangible asset is developed by the company.
❖ To assess whether an internally generated asset meets the criteria for recognition, an
entity classifies the generation of the asset into:
❖ Research phase: the original and planned investigation undertaken with the
prospect of gaining new scientific or technical knowledge and understanding.
❖ Development phase: the application of research findings or other knowledge
to a plan or design for the production of new or substantially improved