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Section 18: Intangible assets other than goodwill 18.1 Introduction. 18.2 Scope of the standard.
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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Section 18 – 18.7 Measurement After Initial Recognition
18.7.1 Extract from FRS 102 Section 18.18-18.18H
18.18 An entity shall measure intangible assets after initial recognition using the cost model (in accordance with paragraph 18.18A) or the revaluation model (in accordance with paragraphs 18.18B to 18.18H). Where the revaluation model is selected, this shall be applied to all intangible assets in the same class of asset. If an intangible asset in a class of revalued intangible assets cannot be revalued because there is no active market for this asset, the asset shall be carried at its cost less any accumulated amortisation and impairment losses.
Cost model
18.18A Under the cost model, an entity shall measure its assets at cost less any accumulated amortisation and any accumulated impairment losses. The requirements for amortisation are set out in paragraphs 18.19 to 18.24.
Revaluation model
18.18B Under the revaluation model, an intangible asset shall be carried at a revalued amount, being its fair value at the date of revaluation less any subsequent accumulated amortisation and subsequent accumulated impairment losses, provided that the fair value can be determined by reference to an active market. The requirements for amortisation are set out in paragraphs 18.19 to 18.24.18.18C The revaluation model does not allow:
(a) the revaluation of intangible assets that have not previously been recognised as assets; or
(b) the initial recognition of intangible assets at amounts other than cost.
18.18D Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period.
18.18E If the fair value of a revalued intangible asset can no longer be determined by reference to an active market in accordance with the requirements of paragraph 18.18B, the carrying amount of the asset shall be its revalued amount at the date of the last revaluation by reference to the active market, less any subsequent accumulated amortisation and any subsequent accumulated impairment losses.
18.18F The revaluation model is applied after an asset has been initially recognised at cost. However, if only part of the cost of an intangible asset is recognised as an asset because the asset did not meet the criteria for recognition until part of the way through the process (see paragraph 18.10A), the revaluation model may be applied to the whole of that asset
Reporting gains and losses on revaluations
18.18G If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be recognised in other comprehensive income and accumulated in equity. However, the increase shall be recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss.
18.18H The decrease of an asset’s carrying amount as a result of a revaluation shall be recognised in other comprehensive income to the extent of any previously recognised revaluation increase accumulated in equity, in respect of that asset. If a revaluation decrease exceeds the accumulated revaluation gains recognised in equity in respect of that asset, the excess shall be recognised in profit or loss.
18.7.2 OmniPro comment
18.7.2.1 Accounting policy choice
Section 18.18 of FRS 102 provides two choices following initial recognition on the balance sheet; to apply the cost model or the revaluation model follow initial recognition where the intangible is capitalised.
18.7.2.1.1 Cost model
Under the cost model an entity will carry the asset at its cost as determined on initial recognition as detailed at 18.4.2, 18.5.2 and 18.6.2 less accumulated amortisation and subsequent impairment losses as stated in Section 18.18A of FRS 102.
18.7.2.1.2 Revaluation model
Where the revaluation option in section 18.18B of FRS 102 is available and is chosen by an entity, the carrying amount should be the fair value at the date of revaluation less accumulated amortisation and subsequent impairment losses. Revaluations should be applied to all asset classes. It is permitted to apply the revaluation model to the whole of an intangible asset even if part of that asset was expensed because it did not meet the recognition criteria Section 18.18F of FRS 102. That said, an intangible asset which was previously expensed (whether that be by choice or due to it not meeting the recognition criteria) cannot be brought back on to the balance sheet through a revaluation (Section 18.18(b) of FRS102).
Revaluations gains should be posted to the OCI (other comprehensive income) and then the revaluation reserve to the extent that it reverses a previous devaluation which was posted to the profit and loss. For revaluation losses, these should be recognised in OCI and the revaluation reserve for that asset except to the extent that the revaluation reserve for that asset is reduced to nil, then it should be posted to the profit and loss (Section 18.18G to 18.18H of FRS 102).
18.7.2.1.2.1 Why can the revelation model be applied?
Note the revaluation model can only be utilised where there is an active market. It is not possible to use a valuation technique (even for intangibles recognised under the valuation model on acquisition). An active market is a market in which all the following conditions exists:
- The items traded in the market are homogeneous;
- Willing buyers and sellers can normally be found at any time; and
- Prices are available to the public.
As a result of the need for an active market the volume of entities being able to adopt the revaluation option for intangible assets will be very limited.
18.7.2.1.2.2 Frequency of revaluations
Revaluations should be performed with sufficient regularity to ensure the carrying amount does not differ materially from the fair value at the reporting date (Section 18.18D of FRS 102). Therefore, there is judgement to be applied as to when a valuation is necessary. Therefore, it is likely where the intangible operates in a volatile market then it will have to be revalued every year however where it is a stable market and the difference between the carrying amount and fair value is immaterial it may not be required every year. However, given that there will be an active market it would be hard to argue why a yearly revaluation would not be accounted for.
18.7.2.1.2.3 Revaluation model applied – subsequently unable to determine fair value
Where a reliable revaluation can no longer be determined, the carrying amount at that date is determined to be its cost (Section 18.18E of FRS 102).
18.7.2.1.2.4 Revaluations and deferred tax
Under Section 29 of FRS 102, deferred tax will also need to be recognised on the uplift in value on revaluation at the standard rate of tax and where there is no revaluation below cost consideration of deferred tax asset will need to be given. The posting of deferred tax and its movement will follow the treatment with regard to the revaluation adjustment with respect to whether it is posted to OCI or the profit and loss. See example 9 Section 17 at 17.2.5.2.2.3 of this website for an illustration of how the movement in revaluations are accounted for including any deferred tax impact.
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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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