ACCA FR Syllabus B. Accounting For Transactions In Financial Statements - When can you recognise an IA and for how much? - Notes ^{2 / 5}

In posher terms...

1. When it is probable that future economic benefits attributable to the asset will flow to the entity

2. The cost of the asset can be measured reliably

So at how much should we show the asset at initially?

Well thick pants - it’s obviously brought in at cost!!  Aaarh but what is cost I hear you whisper in my big floppy cow-like ears.. well it’s

• Purchase price plus directly attributable costs

  Remember that directly attributable means costs which otherwise would not have been paid, so often staff costs are excluded.

Let’s now look at some specific issues that come up often in the exam:

• IA acquired as part of a business combination

  Well this time, the intangible asset (other than goodwill ) should initially be recognised at its fair value.

  If the FV cannot be ascertained then it is not reliably measurable and so cannot be shown in the accounts. 

  In this case by not showing it, this means that goodwill becomes higher.

• Research and Development Costs
  Research costs are always expensed in the income statement

  Development costs are capitalised only after technical and commercial feasibility of the asset for sale or use have been established. 

  This means that the enterprise must intend and be able to complete the intangible asset and either use it or sell it and be able to demonstrate how the asset will generate future economic benefits. 

  If entity cannot distinguish between research and development - treat as research and expense

• Research and Development Acquired in a Business Combination

  Recognised as an asset at cost, even if a component is research. 

  Subsequent expenditure on that project is accounted for as any other research and development cost

• Internally Generated Brands, Mastheads, Titles, Lists

  Should not be recognised as assets - expense them as there is no reliable measure

• Computer Software

  If purchased: capitalise as an IA
  Operating system for hardware: include in hardware cost

  If internally developed: charge to expense until technological feasibility, probable future benefits, intent and ability to use or sell the software, resources to complete the software, and ability to measure cost.

Always expense the following:

1. Internally generated goodwill

2. Start-up, pre-opening, and pre-operating costs

3. Training cost

4. Advertising and promotional cost, including mail order catalogues

5. Relocation costs