5. maj 2022

CIRD10115 Intangible assets: introduction: link with accountancy HMRC internal manual

Government grants may be in the form of a specific grant that includes specific requirements/stipulations such as employment levels or pollution control levels. If these stipulations are not met, then the grants may need to be refunded by the company. Government grants may also include forgivable loans in situations where companies meet certain conditions.

For this reason, internally generated brands, mastheads, publishing titles, customer lists and similar items are not recognised as intangible assets. The costs of generating other internally generated intangible assets are classified into whether they arise in a research phase or a development phase. Development expenditure that meets specified criteria is recognised as the cost of an intangible asset. IAS 38 Intangible Assets outlines the accounting requirements for intangible assets, which are non-monetary assets which are without physical substance and identifiable (either being separable or arising from contractual or other legal rights). If the entity chooses to separately recognise intangible assets, they must apply this policy to all intangible assets in the same class and on a consistent basis.

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• Development expenditure that meets specified criteria is recognised as the cost of an intangible asset.
• Contract-based intangible assets represent the value of rights arising out of contractual arrangements.
• However, there is not necessarily a straight read across from the entries in the profit and loss account to the tax computation.
• Software and website costs which are being developed internally are dealt with under Section 18 of FRS 102 as research and development costs.
• It may choose to measure the asset at fair value in rare cases when fair value can be determined by reference to an active market.
• The corporate intangible assets regime links the tax treatment to that applied in the accounts of the company in question.

As a long-term asset, this expectation extends for more than one year or one operating cycle. Paragraph 18.21 of FRS 102 says that intangible assets are amortised on a systematic basis over their useful lives. It would not be unreasonable for certain intangible assets to have a longer life than 10 years and as long as management can provide evidence to support their assessment of that useful life, it would be acceptable to amortise the intangible assets over that said period. The 10-year rule in FRS 102 is triggered when management are unable to make a reliable estimate of the useful life of an intangible asset.

Intangible Assets

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This amendment will be accounted for as a change in accounting estimate under Section 10 Accounting Policies, Estimates and Errors and hence will be applied prospectively (i.e. no retrospective restatement is needed). Contract-based https://adprun.net/how-to-start-a-bookkeeping-business/ represent the value of rights arising out of contractual arrangements. Such arrangements are easily identifiable since they meet the contractual legal criterion. If the assessing party determines that any contracts mentioned will result in future cash flow for the contracting party or intangible liability, they may classify them as intangible.

Standard history

Therefore, if management cannot arrive at a reliable estimate of the intangible asset’s useful life, then they must amortise it up to a maximum of 10 years. FRS 102 requires an entity to disclose the useful lives OR the amortisation rates used for each class of intangible asset together with the reasons for choosing those periods. This 10-year rule has caused an element of confusion because some accountants believe this to be a maximum period for all intangible assets, which is not the case.

However, externally generated goodwill can be recorded as an asset when a company acquires or merges with another company and pays above its fair value. According to the IFRS, intangible assets are non-monetary assets without physical substance. Like all assets, intangible assets are expected to generate economic returns for the company in the future.

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What this essentially means is the difference represents how much the buyer is willing to pay for the business as a whole, over and above the value of its individual assets alone. For example, if XYZ Company paid $50 million to acquire a sporting goods business and $10 million was the value of its assets net of liabilities, then $40 million would be goodwill. Companies can only have goodwill on their balance sheets if they have acquired another business. Consequently, if an intangible asset has a useful life but can be renewed easily and without substantial cost, it is considered perpetual and is not amortized.