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Section 18: Intangible assets other than goodwill
18.2.1 Extract from FRS 102 Section 18.1 to 18.3.
18.2.2 OmniPro comment – Scope.
18.3.1 Extract from FRS 102 Section 18.4-18.7.
18.3.2.2 Examples of intangible assets:
18.3.2.3 Four situations where intangible assets arise.
18.4 Acquisition as part of a business combination – recognition, initial measurement.
18.4.1 Extract from FRS 102 Section 18.8 and 18.11.
18.4.2.1 Process for identifying intangibles in business contributions.
18.5 Separately acquired intangible assets – recognition, and initial measurement.
18.5.1 Extract from FRS 102 Section 18.10.
18.5.2.1 Examples of directly attributable costs.
18.6 Internally generated intangible assets – recognition and initial measurement.
18.6.1 Extract from FRS 102 Section 18.8A-18.8K, 18.17 and 18.10A-18.10B.
18.6.2.2 Developments Costs – Defined & Examples.
18.6.2.2.1 Policy Choice to capitalise or expense development costs.
18.6.2.2.2 Conditions for capitalisation of development costs.
18.6.2.2.3 Timing of capitalisation of development costs if conditions are met.
18.6.2.2.4 What development costs are permitted to be capitalised?.
18.6.2.2.5 Documentation to evidence that development costs met the criteria for capitalised.
18.6.2.2.6 When to cease capitalisation?.
18.7 Measurement after initial recognition.
18.7.1 Extract from FRS 102 Section 18.18-18.18H..
18.7.2.1 Accounting policy choice.
18.7.2.1.2.1 Why can the revelation model be applied?.
18.7.2.1.2.2 Frequency of revaluations.
18.7.2.1.2.3 Revaluation model applied – subsequently unable to determine fair value.
18.7.2.1.2.4 Revaluations and deferred tax.
18.8 Amortisation, useful life and residual value.
18.8.1 Extract from FRS 102 Section 18.19-18.24.
18.8.2.3 Useful economic life.
18.8.2.3.1 Factors to consider when assessing useful economic life.
18.8.2.3.2 Contractual rights, renewal option and useful economic life.
18.9 Impairments, retirements and disposals.
18.9.1 Extract from FRS 102 Section 18.25 and 18.26.
18.10.1 Extract from FRS 102 Section 18.27 and 18.29A..
18.10.2.1 Accounting policy extract.
18.10.2.1.1 Intangible asset accounting policy.
18.10.2.1.2 Goodwill accounting policy.
18.10.2.1.3 Research and development accounting policy.
18.10.2.2.1 Intangible fixed asset note
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The below extracts and guidance is applicable for periods beginning before 1 January 2019 and are based on the September 2015 version of FRS 102. For periods beginning on or after 1 January 2019, the March 2018 version of FRS 102 applies which incorporates the changes made by the Triennial review of FRS 102. Note the March 2018 version of FRS 102 can be voluntarily applies for periods beginning before 1 January 2019. For the extracts from the March 2018 version of FRS 102 and the related guidance please click on the following link. For details of a summary of the main changes as a result of the triennial review please see the following link.
18.2 Scope of the Standard
18.2.1 Extract from FRS 102 Section 18.1 to 18.3
18.1 This section applies to accounting for all intangible assets other than goodwill (see Section 19 Business Combinations and Goodwill) and intangible assets held by an entity for sale in the ordinary course of business (see Section 13 Inventories and Section 23 Revenue).
18.1A This section does not apply to the accounting for deferred acquisition costs and intangible assets arising from contracts in the scope of FRS 103 Insurance Contracts, except for the disclosure requirements in this section which apply to intangible assets arising from contracts in the scope of FRS 103.
18.2 An intangible asset is an identifiable non-monetary asset without physical substance. Such an asset is identifiable when:
(a) it is separable, i.e. capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, asset or liability; or
(b) it arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.
18.3 This section does not apply to the following:
(a) financial assets (see Section 11 Basic Financial Instruments and Section 12 Other Financial Instruments Issues);
(b) heritage assets (see Section 34 Specialised Activities); or
(c) mineral rights and mineral reserves, such as oil, natural gas and similar non-regenerative resources (see Section 34).
18.2.2 OmniPro comment – Scope
18.2.2.1 Overview
Section 18 has a wider scope than old GAAP. The objective of the Section is to set out the accounting treatment of intangible assets that are not dealt with by any other standard. The expenditure on advertising, training, start-up costs and research and development are some of the activities within the standard’s scope.
18.2.2.2 Distinction between financial assets and intangible assets / Definition of intangible assets
As stated in Section 18.2 of FRS 102, an intangible asset is:
- An identifiable non-monetary asset without physical substance i.e. it is separable, capable of being separated or divided from the entity and sold, transferred, licensed rented or exchanged either individually or together with a related contract; or
- It arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights or obligations
The distinctions between financial assets and intangible assets can be problematic. The key difference is that financial asset derives its value from a contractual right to receive cash or cash equivalents in the future whereas an intangible derives its value from the rights and privileges granted to entities. Where an entity has no say over the pricing of a product or service but is entitled to receive cash from this, then this is more than likely a financial asset and is not an intangible. Also, where an intangible asset has already been recognised and income is derived from this, then this is an intangible asset.
As can be derived from Section 18.2 of FRS 102, even if no legal right exists it is possible for an asset to meet the definition if the right could be sold, transferred, licenced or rented (i.e. through custody) however circumstances in which this will arise is rare. Control is usually obtained from legal title or licences. An entity should not usually recognise its workforce as intangibles as they have no legal right to them.
There is also a requirement that the asset must not lack physical substance, however there can be instances where intangible assets are included in another asset or medium. For example, contracts; in the case of computer software it can be on a physical disc or drive. There is no clear guidance on what is defined as lacking substance. Section 18 does not deal with such assets. In this case it may be appropriate to consider IFRS standards i.e. IAS 38. IAS 38.5 provides examples of intangible assets as follows:
- Software embedded in computer-controlled equipment that cannot operate without it are an integral part of the related hardware and is treated as property plant and equipment.
- The operating system of a computer is usually integral to the computer and is included in PPE.
- Software which is not integral part of the hardware is treated as an intangible. Research and development expenditure may result in an asset with physical substance e.g. a prototype but as the physical substance is secondary to its intangible component, the related knowledge, it is treated as an intangible asset.
Therefore, from the above it can be seen that where software is separately identifiable then it must be classed as an intangible and not PPE.
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Examples
Example 1: Commencement of capitalisation.
Example 2: Allowable costs for capitalisation.
Example 3: Revising residual value of an asset.
Example 4: Change in accounting estimate.
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