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Disclosures
Extract from FRS 102 Section 18.27 and 18.29A
18.27 An entity shall disclose the following for each class of intangible assets:
(a) the useful lives or the amortisation rates used and the reasons for choosing those periods;
(b) the amortisation methods used;
(c) the gross carrying amount and any accumulated amortisation (aggregated with accumulated impairment losses) at the beginning and end of the reporting period;
(d) the line item(s) in the statement of comprehensive income (or in the income statement, if presented) in which any amortisation of intangible assets is included; and
(e) a reconciliation of the carrying amount at the beginning and end of the reporting period showing separately:
(i) additions, indicating separately those from internal development and those acquired separately;
(ii) disposals;
(iii) acquisitions through business combinations;
(iv) revaluations;
(v) amortisation;
(vi) impairment losses; and
(vii) other changes.
This reconciliation need not be presented for prior periods.
18.28 An entity shall also disclose:
(a) a description, the carrying amount and remaining amortisation period of any individual intangible asset that is material to the entity’s financial statements;
(b) for intangible assets acquired by way of a grant and initially recognised at fair value (see paragraph 18.12):
(i) the fair value initially recognised for these assets; and
(ii) their carrying amounts.
(c) the existence and carrying amounts of intangible assets to which the entity has restricted title or that are pledged as security for liabilities; and
(d) the amount of contractual commitments for the acquisition of intangible assets.
18.29 An entity shall disclose the aggregate amount of research and development expenditure recognised as an expense during the period (i.e. the amount of expenditure incurred internally on research and development that has not been capitalised as an intangible asset or as part of the cost of another asset that meets the recognition criteria in this FRS).
18.29A If intangible assets are accounted for at revalued amounts, an entity shall disclose the following:
(a) the effective date of the revaluation;
(b) whether an independent valuer was involved;
(c) the methods and significant assumptions applied in estimating the assets’ fair values; and
(d) for each revalued class of intangible assets, the carrying amount that would have been recognised had the assets been carried under the cost model.
OmniPro comment
Detailed above are the disclosures required under Section 18. Note although Section 18 does not require prior year comparatives, Company Law does require such comparatives. See below examples of disclosures required in the financial statements. Company Acts disclosure requirements have also been included.
Example 7: Extract from an accounting policy for an entity with intangible assets including goodwill:
Intangible assets
Intangible assets acquired as part of a business combination are initially recognised at fair value being their deemed cost as at the date of acquisition. These generally include brand and customer related intangible assets. Computer software that is not an integral part of an item of computer hardware is also classified as an intangible asset. Where intangible assets are separately acquired, they are capitalised at cost. Cost comprises purchase price and other directly attributable costs.
Intangible assets with finite lives are amortised over the period of their expected useful lives in equal annual instalments, as follows;
Brands 5 to 10 years
Customer related 5 to 20 years
Supplier agreements 4 to 10 years
Computer related 3 to 7 years
Subsequent to initial recognition, intangible assets are stated at cost less accumulated amortisation and impairment losses incurred.
The company’s policy is to review the remaining economic lives and residual values of intangible assets on an on-going basis and to adjust the amortisation charge to reflect the remaining estimated life where applicable and residual value where indicators of a change are present.
Goodwill
Positive goodwill acquired on each business combination is capitalised, classified as an asset on the statement of financial position and amortised on a straight line basis over its useful life of 10 years. Goodwill acquired in a business combination is, from the date of acquisition, allocated to each cash generating unit that is expected to benefit from the synergies of the combination. If an investment is disposed of any unamortised goodwill is subsumed within goodwill in the profit and loss on sale on discontinuance. Useful life is determined by reference to the period over which the values of the underlying businesses are expected to exceed the values of their identifiable net assets.
Goodwill is reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable.
Negative goodwill represents the fair value of net assets on acquisition in excess of the fair value of consideration. Negative goodwill is capitalised and amortised through the profit and loss account in the period in which the non-monetary assets are recovered. In the case of fixed assets acquired, this is the period over which they are depreciated and in the case of stocks it is the period over which they are sold or otherwise realised.
Research and development expenditure
Pure and applied research is written off as incurred. Development expenditure related to specific processes intended for commercial exploitation is carried forward and amortised over the periods expected to benefit from the expenditure, commencing with the period in which related sales are first made.
OR THE BELOW WHEN A POLICY OF NON CAPITALISATION IS ADOPTED
All expenditure incurred on research and development is written off as it is incurred. Research and development expenditure of CU200,000 (2014: CU100,000) was incurred during the year
Extract from notes to the financial statements (assuming revaluation upwards of CU375,000 and there was an active market available to value the asset)
- Intangible assets
|
|
Customer lists |
Development expenditure |
Patents |
Goodwill |
Total |
||||
|
|
CU |
CU |
CU |
CU |
CU |
||||
|
Costs |
|
|
|
|
|
||||
|
At beginning of year |
207,473 |
150,038 |
488,979 |
144,523 |
891,013 |
||||
|
Additions in year |
1,295,000 |
165,000 |
91,733 |
34,704 |
1,586,437 |
||||
|
Revaluation |
500,000 |
– |
– |
– |
500,000 |
||||
|
Acquisition of subsidiary undertaking |
– |
– |
– |
100,000 |
100,000 |
||||
|
Disposals in year |
– |
(93,359) |
– |
– |
(93,359) |
||||
|
At end of year |
1,402,473 |
221,679 |
580,712 |
279,227 |
2,984,091 |
||||
|
|
|
|
|
|
|
||||
|
Depreciation |
|
|
|
|
|
||||
|
At beginning of year |
187,723 |
111,836 |
270,802 |
134,767 |
705,128 |
||||
|
Charge for Year |
37,543 |
26,799 |
29,015 |
56,642 |
149,999 |
||||
|
Revaluation |
(125,000) |
– |
– |
– |
(125,000) |
||||
|
On disposals |
– |
(42,060) |
– |
– |
(42,060) |
||||
|
Impairment |
– |
– |
100,000 |
– |
100,000 |
||||
|
At end of year |
100,266 |
96,575 |
399,817 |
191,409 |
788,067 |
||||
|
|
|
|
|
|
|
||||
|
Net book value |
|
|
|
|
|
||||
|
At 31 December 2015 |
1,652,207 |
125,104 |
80,895 |
87,818 |
2,196,024 |
||||
|
|
|
|
|
|
|
||||
|
At 31 December 2014 |
19,750 |
38,202 |
18,177 |
9,756 |
85,885 |
||||
The patents have been pledged as security on loans taken out by the company. There were no capital commitments at the year end.
The customer lists are valued based on market value at 31 December 2015 as determined from an active market in which they are traded. The remaining useful life on the customer lists is 3 years.
The historical cost of the customer list is as follows:
|
At 31 December 2015 |
CU20,020 |
|
At 31 December 2014 |
CU24,165 |
As a result of falling profits and in accordance with Section 27 of FRS 102, the carrying values of the patent assets have been compared to their recoverable amounts. As a result of this exercise an impairment charge of CU100,000 recognised in the financial statements. The value in use has been derived from the future cash flow projections using a pre-tax discount rate of X%. Cash flows have been projected over the next five years based on management’s business plan, and thereafter a steady growth rate of 1% has been applied which is consistent with the company’s growth rate over the past number of years.
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