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Chapter 12

RSM220H1 Chapter Notes - Chapter 12: Intangible Asset, Book Value, Impaired Asset

Rotman Commerce
Course Code
Dragan Stojanovic

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Chapter 12: Intangible Assets
Definition, Recognition, and Measurement of Intangible Assets
-Intangible assets: identifiable non-monetary assets that lack physical substance
-Identifiable in the sense that it results from contractual or other legal rights OR it is separable from the entity
Recognition and Measurement at Acquisition
-Recognition criteria identical to PPE and measured at cost at acquisition
-Must be probably that entity will receive future economic benefits
-Asset’s cost can be reliably measured
-Purchased intangibles
If there are delayed payment terms, interest portions are recognized as a financing expense rather than
part of the asset’s cost
If the intangible is acquired for shares, cost is the asset’s FV; however, if FV of intangible cannot be
measured reliably, the shares’ FV is used
If the intangible is acquired by giving up non-monetary assets, the cost of the intangible is the FV of
what is given up or the FV of the intangible received, whichever one can be more reliably measured.
This assumes that the transaction has commercial substance!
If the intangible is acquired as a government grant, the asset’s FV establishes its cost on the books
-Intangible purchased in a business combination
Intangibles acquired that aren’t identifiable are considered part of goodwill
Acquisition cost assigned to identifiable intangible acquired is its FV
Ex. Brand names, patents, customer relationships, and in-process R&D
Recognition and Measurement of Internally Developed Intangible Assets
-Under IFRS, recognize the costs as internally generated intangibles when certain criteria are met, and
expense all others
-Under IFRS, recognize all costs of internally generated intangibles as an expense
-Under ASPE, there is the choice between both IFRS alternatives
-Costs in research phase are expensed when they are incurred
-Costs in development phase are capitalized when all six criteria are met:
Technical feasibility of completing the intangible
The entity’s intention to complete it for use or sale
The entity’s ability to use or sell it
Availability of technical, financial, and other resources needed to complete it, and to use or sell it
Existence of a market for the asset if it will be sold, or its usefulness to the entity if it will be used
The ability to reliably measure the costs associated with and attributed to the intangible asset during its
ESSENTIALLY: capitalize when future benefits are reasonably certain
-Only directly attributable costs needed to create, produce, and prepare the intangible are capitalized.
Examples include direct costs of personnel, interest or borrowing costs, fees to register a legal right, etc.
-Costs that are EXCLUDED include selling, admin, and other general overhead costs that cannot be directly
Recognition and Measurement after Acquisition
-Under ASPE, only the cost model is allowed
-Under IFRS, cost model and revaluation model allowed; however, revaluation model isn’t used often
-RM requires that a fair value be determined in an active market; many internally generated intangibles don’t
belong to an active market
-Active market -> items are homogenous, supply of buyers and sellers, and prices are available to the public
-Cost model
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