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| Old GAAP | FRS 102 | Further Comment On Differences |
| Intangible Assets | Intangible Assets including research and development Costs (S.18) | |
| Research costs expensed as incurred. | Expenditure on research costs recognised when incurred. | No differences. |
| Development Costs may be capitalised and amortised if specific criteria are met: 1. clearly defined project; 2. related expenditure is separately identifiable; 3. the project is technically feasible; and 4. the project is commercially viable. | Development Costs may be capitalised and amortised if specific criteria are met: 1. the technical feasibility of completing the intangible asset so that it will be available for use or sale; 2. its intention to complete the intangible asset and use or sell it; 3. its ability to use or sell the intangible asset; 4. how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset; 5. the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; 6. its ability to measure reliably the expenditure attributable to the intangible asset during its development. No differences are expected in practice in relation to research and development. | No differences are expected in practice in relation to research and development. |
| An intangible asset is a non-financial fixed asset that does not have physical substance, but is identifiable and is controlled by the entity through custody or legal rights. | An intangible asset is an identifiable non-monetary asset without physical substance. The identifiable criterion is met when an intangible asset is separable or where it arises from contractual or legal rights. Under old GAAP both of the conditions had to be met. Therefore, it is possible that more intangibles will be recognised under FRS 102. | Given that FRS 102 allows an intangible asset to be recognised if it can either be separated or if it arises from contractual or legal rights (assuming that it meets the other conditions for recognition i.e. future economic benefits etc.) compared to old GAAP which requires both of these conditions to be present; this will result in more intangible assets being recognised on the balance sheet. Where the exemption contained in Section 35.10 not to restate business combinations entered into prior to the date of transition, then no transition adjustments will be required to the opening balance sheet. However deferred tax will still have to recognised on the intangibles recognised on the combination as this is required by Section 29. See attached an illustration of how the deferred tax should be calculated (Example 69 – Adjustments For Deferred Tax On Business Combinations Prior To Date Of Transition Where Transition Exemption Availed Of). Even when the exemption above is claimed, business combinations entered into since the date of transition which were previously accounted for under old GAAP will need to be restated to the rules under FRS 102 (i.e. more intangibles, deferred tax etc). This will also result in additional amortisation. Where a default life of 20 years was used, then an adjustment will also be required to use the new default of 5 years for Irish Companies/10 for UK Companies (this is discussed further below). See attached an illustration of the journals required for to restate business combinations since the date of transition (Example 70 – Adjustments To Business Combinations Where It Occurs After The Date Of Transition). Where the exemption contained in Section 35.10 is not claimed then transition adjustments will be required to recognise intangibles previously not recognisable under old GAAP and therefore subsumed within goodwill (i.e. restate business combinations) on business combinations entered into prior to the date of transition. This will have to be performed for all business combinations, entities cannot pick and choose which ones to restate. See attached an illustration of the journals required for to restate business combinations prior to the date of transition (Example 71 – Adjustments To Business Combinations Where It Occurs Before Date Of Transition But Exemption Section 35.10(a) Not Claimed). |
| An internally developed intangible asset can be capitalised only if it has a readily ascertainable market value but also subject to the constraint that, unless the asset had a readily ascertainable market value, the value was limited to an amount that did not create or increase any negative goodwill on acquisition. | Expenditure on intangibles is recognised as an asset when it meets the recognition criteria of an asset. | This difference means that the recognition of intangible assets was previously capped where it would result in negative goodwill. Where this is the case and the exemption not to restate prior business combinations is claimed, then no adjustments will be required. However, if since the date of acquisition such a situation arose a transition adjustment will be required. |
| Cost or valuation model may be adopted. Cost – no explanation of what cost is. | Cost or valuation model may be adopted. Cost – Purchase price and any costs directly attributable to preparing the asset for its intended use. | No differences expected in this area on transition as the costs allowable under FRS 102 are the same as what would have been deemed to be allowable under old GAAP. Entities should review intangibles to assess if any are allowable costs under FRS 102 have incorrectly been capitalised. |
| Valuation model may only be used where an intangible asset has readily ascertainable market value. | Valuation model may only be used where an intangible asset has readily ascertainable market value. | No differences. |
| Indefinite lives are possible, however where this occurs annual impairment reviews are required. | All are assumed to have a finite life. | This is a significant difference. On transition to FRS 102 these assets will now have to be assigned a useful economic life and where this cannot be determined then it will have to be assigned a life not exceeding 10 years (5 years currently in Ireland but it will change to 10 years on adoption of the EU Directive 2013/34). This will result in an additional amortisation charge and will also require an adjustment on transition to FRS 102. The example attached provides the journals required where an intangible was previously considered to have an infinite life (Example 72 – Intangible Asset With An Indefinite Useful Life Under Old GAAP). |
| If unable to make a reliable estimate of the asset’s useful life – rebuttable presumption of 20 years. | If unable to make a reliable estimate of the asset’s useful life – should not exceed 5 years (currently 5 years for Ireland however subject to the enactment of the EU directive 2013/34 which is expected in 2016, this will increase to 10 years). This will result in increased amortisation for companies and consideration required as to the life of previously determined intangible assets with indefinite lives. There will be a transition adjustment required here to determine the previous amortisation that should have been charged up to the date of transition based on the useful economic life when determined. | Where the useful life of intangible assets acquired prior or subsequent to the transition to FRS 102 has been determined and presumably there was a basis for this as required by old GAAP, it is unlikely that this will have any impact as it will continue to be amortised over the period determined under old GAAP. Where under old GAAP the default rate of 20 years was used, as the useful life could not be determined, then a transition adjustment will be required such that the default life of 10 years (5 years for Ireland) should be used. See attached an example of the journals required where a transition adjustment is required (Example 73 – Intangible Asset That Used A Default Useful Life Of 20 Years Under Old GAAP). |
| Amortised on a systematic basis over the useful lives. | Amortised on a systematic basis over the useful lives. | No difference. |
| If having a useful life of more than 20 years tested annually for impairment. | Not applicable as all have finite useful lives. Only carry out impairment review if indicators exist. | Under FRS 102, where no indicators of impairment exist then no impairment review is required. This will reduce the workload for entities. This will not create any transition differences as where an entity has performed an impairment review under old GAAP, it would still be applicable under FRS 102. Hence no adjustments required as a result of this difference. |
| Useful lives reviewed at the end of each reporting period. | Only reviewed if there is an indication of change since the last reporting date. | While there is a difference here, it is unlikely to create issues as FRS 102 still requires a review where indicators of impairment exist. |
| Impairment review at the end of the first full year following acquisition. | Existence of impairment indicators assessed at each reporting date. | Under FRS 102, where no indicators of impairment exist then no impairment review is required. This will reduce the workload for entities. This will not create any transition differences as where an entity has performed an impairment review under old GAAP, it would still be applicable under FRS 102. Hence no adjustments required as a result of this difference. |
| Computer software is property, plant and equipment. | No specific guidance on the classification of computer software/website development within Section 17 and 18, however in these situations it is usually appropriate to look to IFRS and under IFRS these assets are disclosed as intangible assets as they meet the definition of an intangible (software which is not an integral part of an asset/hardware). Therefore this would be seen to be the most appropriate classification. This may require an adjustment on transition to FRS 102 to transfer these assets to intangible assets. | Where software and website development costs have previously been included within PPE, on transition an adjustment may be required to transfer these from PPE to intangibles where they are not an integral part of the hardware. If this is the case, it will merely be a balance sheet reclassification from PPE to intangibles as the useful life etc. should remain the same. See attached an example illustrating the journals required (Example 74 – Transfer Of Software And Website Costs To Intangibles). |
| No reference to the treatment of non-monetary assets. However common practice to measure these as detailed in Section 18. | Intangibles acquired in exchange for non-monetary assets should be measured at fair value unless it lacks commercial substance or if neither the asset received nor the asset given up can be reliably measured (then should be measured at assets cost). | No differences expected in reality as it is likely these transactions were treated in the same way under old GAAP. Where such transactions exist a review should be performed to ensure this treatment was applied. If not a transition adjustment is required. |
| Amortisation only commences when the commercial production or application of the item commences. | Amortisation commences on development expenditure when an intangible asset is available for use even if not put into use. This may result in earlier recognition of amortisation. | Given that amortisation commences earlier under FRS 102 than old GAAP, this may create a difference where the date commercial production or application commences is significantly longer from the date the asset was available for use. The journal required in this case on the opening balance sheet position would be to: Dr profit and loss reserves Cr intangible assets Being journal to reflect amortisation from the date the asset was available for use to the date of transition. Further adjustments will be required since the date of transition where commencement of production/application has still not occurred. |
| These disclosures were not required. | Additional disclosures required under Section 18 to include disclosure of: · the existence and carrying amount of intangibles where there is restricted title or are pledged as security; · the amount of contractual commitments for the intangible assets; and · a description, carrying amount and remaining amortisation period for any intangible asset that is material. | These are merely disclosure exemptions and will need to be included in the financial statements on transition. See an example of the disclosure requirements attached (Example 75 – Extract From Notes To The Financial Statements Revaluation). |
| A residual value can be assigned if it can be measured reliably with the exception of goodwill which was considered to be nil. | The residual value is assumed to be zero. | Where an intangible asset previously had a residual value under old GAAP, a transition adjustment will be required to accelerate the amortisation charge as a residual value is not permitted under FRS 102. The likely journal in the opening balance sheet will be to: Dr Intangible assets Cr Profit and loss reserves A further adjustment will be required in the comparative year i.e. the year following the date of transition. |
| Not applicable. | Intangibles subsumed within goodwill prior to transition date do not have to be separately recognised and the carrying value of goodwill does not have to be adjusted assuming Section 19 is not applied retrospectively (Section 35.10). However even where this transition exemption is chosen deferred tax is required to be recognised under Section 29 for any intangibles recognised under all business combinations. | Change from old GAAP. Deferred tax to be recognised regardless of claiming transition or not. |
| No deferred tax required on the revaluations. | Deferred tax required to be recognised on revaluations in the revaluation reserve. As the intangible is amortised the deferred tax is released to the profit and loss. | In the rare case where the revaluation option is chosen, a difference will arise as the deferred tax of the difference between the tax cost including indexation and the carrying amount will need to be recognised in the revaluation reserve. Application of the journals required are attached (Example 76 – Deferred Tax On Revaluation Where A Previous Revaluation Is Used As Deemed Cost). |
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