AASB138 Intangible Assets
AASB138 Intangible Assets
AASB138 Intangible Assets
Intangible Assets
This compiled Standard applies to annual reporting periods beginning on or
after 1 July 2007. Early application is permitted. It incorporates relevant
amendments made up to and including 30 April 2007.
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* The amendments made by this Standard are not included in this compilation, which
presents the principal Standard as applicable to annual reporting periods beginning on or
after 1 July 2007.
(a) Entities may elect to apply this Standard to annual reporting periods beginning on or
after 1 January 2005 but before 1 July 2007.
Table of Amendments
Application
Aus1.1 This Standard applies to:
(a) each entity that is required to prepare financial
reports in accordance with Part 2M.3 of the
Corporations Act and that is a reporting entity;
(b) general purpose financial reports of each other
reporting entity; and
(c) financial reports that are, or are held out to be, general
purpose financial reports.
Aus1.2 This Standard applies to annual reporting periods beginning
on or after 1 January 2005.
[Note: For application dates of paragraphs changed or added by an amending
Standard, see Compilation Details.]
Scope
2. This Standard shall be applied in accounting for intangible assets,
except:
Definitions
8. The following terms are used in this Standard with the meanings
specified.
An active market is a market in which all the following
conditions exist:
(a) the items traded in the market are homogeneous;
(b) willing buyers and sellers can normally be found at
any time; and
(c) prices are available to the public.
The agreement date for a business combination is the date that a
substantive agreement between the combining parties is
reached and, in the case of publicly listed entities,
announced to the public. In the case of a hostile takeover,
the earliest date that a substantive agreement between the
combining parties is reached is the date that a sufficient
number of the acquiree’s owners have accepted the
acquirer’s offer for the acquirer to obtain control of the
acquiree.
Amortisation is the systematic allocation of the depreciable
amount of an intangible asset over its useful life.
An asset is a resource:
(a) controlled by an entity as a result of past events; and
Intangible Assets
9. Entities frequently expend resources, or incur liabilities, on the
acquisition, development, maintenance or enhancement of intangible
resources such as scientific or technical knowledge, design and
implementation of new processes or systems, licences, intellectual
property, market knowledge and trademarks (including brand names
and publishing titles). Common examples of items encompassed by
these broad headings are computer software, patents, copyrights,
motion picture films, customer lists, mortgage servicing rights, fishing
licences, import quotas, franchises, customer or supplier relationships,
customer loyalty, market share and marketing rights.
10. Not all the items described in paragraph 9 meet the definition of an
intangible asset, that is, identifiability, control over a resource and
existence of future economic benefits. If an item within the scope of
this Standard does not meet the definition of an intangible asset,
expenditure to acquire it or generate it internally is recognised as an
expense when it is incurred. However, if the item is acquired in a
business combination, it forms part of the goodwill recognised at the
acquisition date (see paragraph 68).
Identifiability
11. The definition of an intangible asset requires an intangible asset to be
identifiable to distinguish it from goodwill. Goodwill acquired in a
business combination represents a payment made by the acquirer in
anticipation of future economic benefits from assets that are not
capable of being individually identified and separately recognised.
The future economic benefits may result from synergy between the
identifiable assets acquired or from assets that, individually, do not
qualify for recognition in the financial report but for which the acquirer
is prepared to make a payment in the business combination.
Control
13. An entity controls an asset if the entity has the power to obtain the
future economic benefits flowing from the underlying resource and to
restrict the access of others to those benefits. The capacity of an entity
to control the future economic benefits from an intangible asset would
normally stem from legal rights that are enforceable in a court of law.
In the absence of legal rights, it is more difficult to demonstrate
control. However, legal enforceability of a right is not a necessary
condition for control because an entity may be able to control the
future economic benefits in some other way.
14. Market and technical knowledge may give rise to future economic
benefits. An entity controls those benefits if, for example, the
knowledge is protected by legal rights such as copyrights, a restraint of
trade agreement (where permitted) or by a legal duty on employees to
maintain confidentiality.
15. An entity may have a team of skilled staff and may be able to identify
incremental staff skills leading to future economic benefits from
training. The entity may also expect that the staff will continue to
make their skills available to the entity. However, an entity usually has
insufficient control over the expected future economic benefits arising
from a team of skilled staff and from training for these items to meet
the definition of an intangible asset. For a similar reason, specific
management or technical talent is unlikely to meet the definition of an
intangible asset, unless it is protected by legal rights to use it and to
obtain the future economic benefits expected from it, and it also meets
the other parts of the definition.
16. An entity may have a portfolio of customers or a market share and
expect that, because of its efforts in building customer relationships
and loyalty, the customers will continue to trade with the entity.
However, in the absence of legal rights to protect, or other ways to
control, the relationships with customers or the loyalty of the
Separate Acquisition
25. Normally, the price an entity pays to acquire separately an intangible
asset reflects expectations about the probability that the expected future
economic benefits embodied in the asset will flow to the entity. In
other words, the effect of probability is reflected in the cost of the
asset. Therefore, the probability recognition criterion in
(b) any directly attributable cost of preparing the asset for its
intended use.
28. Examples of directly attributable costs are:
(a) costs of employee benefits (as defined in AASB 119) arising
directly from bringing the asset to its working condition;
(b) professional fees arising directly from bringing the asset to its
working condition; and
(c) costs of testing whether the asset is functioning properly.
29. Examples of expenditures that are not part of the cost of an intangible
asset are:
(a) costs of introducing a new product or service (including costs of
advertising and promotional activities);
(b) costs of conducting business in a new location or with a new
class of customer (including costs of staff training); and
(c) administration and other general overhead costs.
Exchanges of Assets
45. One or more intangible assets may be acquired in exchange for a non-
monetary asset or assets, or a combination of monetary and non-
monetary assets. The following discussion refers simply to an
exchange of one non-monetary asset for another, but it also applies to
all exchanges described in the preceding sentence. The cost of such an
intangible asset is measured at fair value unless (a) the exchange
transaction lacks commercial substance or (b) the fair value of neither
the asset received nor the asset given up is reliably measurable. The
acquired asset is measured in this way even if an entity cannot
1 AASB 120 only applies to for-profit entities. Not-for-profit entities are required to
recognise the intangible asset and the grant initially at fair value in accordance with
AASB 1004 Contributions.
53. If an entity cannot distinguish the research phase from the development
phase of an internal project to create an intangible asset, the entity
treats the expenditure on that project as if it were incurred in the
research phase only.
(b) the design of tools, jigs, moulds and dies involving new
technology;
(c) the design, construction and operation of a pilot plant that is not
of a scale economically feasible for commercial production; and
(d) the design, construction and testing of a chosen alternative for
new or improved materials, devices, products, processes,
systems or services.
60. To demonstrate how an intangible asset will generate probable future
economic benefits, an entity assesses the future economic benefits to
be received from the asset using the principles in AASB 136
Impairment of Assets. If the asset will generate economic benefits only
in combination with other assets, the entity applies the concept of cash-
generating units in AASB 136.
61. Availability of resources to complete, use and obtain the benefits from
an intangible asset can be demonstrated by, for example, a business
plan showing the technical, financial and other resources needed and
the entity’s ability to secure those resources. In some cases, an entity
demonstrates the availability of external finance by obtaining a
lender’s indication of its willingness to fund the plan.
62. An entity’s costing systems can often measure reliably the cost of
generating an intangible asset internally, such as salary and other
expenditure incurred in securing copyrights or licences or developing
computer software.
(d) amortisation of patents and licences that are used to generate the
intangible asset.
AASB 123 specifies criteria for the recognition of interest as an
element of the cost of an internally generated intangible asset.
Recognition of an Expense
68. Expenditure on an intangible item shall be recognised as an
expense when it is incurred unless:
(a) it forms part of the cost of an intangible asset that meets the
recognition criteria (see paragraphs 18-67); or
Cost Model
74. After initial recognition, an intangible asset shall be carried at its
cost less any accumulated amortisation and any accumulated
impairment losses.
Revaluation Model
75. After initial recognition, an intangible asset shall be carried at a
revalued amount, being its fair value at the date of the revaluation
less any subsequent accumulated amortisation and any subsequent
accumulated impairment losses. For the purpose of revaluations
under this Standard, fair value shall be determined by reference to
an active market. Revaluations shall be made with such regularity
that at the reporting date the carrying amount of the asset does not
differ materially from its fair value.
(b) typical product life cycles for the asset and public information
on estimates of useful lives of similar assets that are used in a
similar way;
(c) technical, technological, commercial or other types of
obsolescence;
(d) the stability of the industry in which the asset operates and
changes in the market demand for the products or services
output from the asset;
(e) expected actions by competitors or potential competitors;
(f) the level of maintenance expenditure required to obtain the
expected future economic benefits from the asset and the entity’s
ability and intention to reach such a level;
(g) the period of control over the asset and legal or similar limits on
the use of the asset, such as the expiry dates of related leases;
and
91. The term ‘indefinite’ does not mean ‘infinite’. The useful life of an
intangible asset reflects only that level of future maintenance
expenditure required to maintain the asset at its standard of
performance assessed at the time of estimating the asset’s useful life,
and the entity’s ability and intention to reach such a level. A
conclusion that the useful life of an intangible asset is indefinite should
not depend on planned future expenditure in excess of that required to
maintain the asset at that standard of performance.
94. The useful life of an intangible asset that arises from contractual
or other legal rights shall not exceed the period of the contractual
or other legal rights, but may be shorter depending on the period
over which the entity expects to use the asset. If the contractual or
other legal rights are conveyed for a limited term that can be
renewed, the useful life of the intangible asset shall include the
renewal period(s) only if there is evidence to support renewal by
the entity without significant cost.
95. There may be both economic and legal factors influencing the useful
life of an intangible asset. Economic factors determine the period over
which future economic benefits will be received by the entity. Legal
factors may restrict the period over which the entity controls access to
these benefits. The useful life is the shorter of the periods determined
by these factors.
96. Existence of the following factors, among others, indicates that an
entity would be able to renew the contractual or other legal rights
without significant cost:
(a) there is evidence, possibly based on experience, that the
contractual or other legal rights will be renewed. If renewal is
contingent upon the consent of a third party, this includes
evidence that the third party will give its consent;
Residual Value
100. The residual value of an intangible asset with a finite useful life
shall be assumed to be zero unless:
(a) there is a commitment by a third party to purchase the asset
at the end of its useful life; or
(b) there is an active market for the asset and:
(i) residual value can be determined by reference to that
market; and
(ii) it is probable that such a market will exist at the end of
the asset’s useful life.
101. The depreciable amount of an asset with a finite useful life is
determined after deducting its residual value. A residual value other
than zero implies that an entity expects to dispose of the intangible
asset before the end of its economic life.
102. An estimate of an asset’s residual value is based on the amount
recoverable from disposal using prices prevailing at the date of the
estimate for the sale of a similar asset that has reached the end of its
useful life and has operated under conditions similar to those in which
the asset will be used. The residual value is reviewed at least at the
end of each annual reporting period. A change in the asset’s residual
value is accounted for as a change in an accounting estimate in
accordance with AASB 108 Accounting Policies, Changes in
Accounting Estimates and Errors.
103. The residual value of an intangible asset may increase to an amount
equal to or greater than the asset’s carrying amount. If it does, the
asset’s amortisation charge is zero unless and until its residual value
subsequently decreases to an amount below the asset’s carrying
amount.
(a) on disposal; or
(b) when no future economic benefits are expected from its use
or disposal.
113. The gain or loss arising from the derecognition of an intangible
asset shall be determined as the difference between the net disposal
proceeds, if any, and the carrying amount of the asset. It shall be
recognised in profit or loss when the asset is derecognised (unless
AASB 117 requires otherwise on a sale and leaseback). Gains shall
not be classified as revenue.
114. The disposal of an intangible asset may occur in a variety of ways (e.g.
by sale, by entering into a finance lease, or by donation). In
determining the date of disposal of such an asset, an entity applies the
criteria in AASB 118 Revenue for recognising revenue from the sale of
goods. AASB 117 applies to disposal by a sale and leaseback.
117. Amortisation of an intangible asset with a finite useful life does not
cease when the intangible asset is no longer used, unless the asset has
been fully depreciated or is classified as held for sale (or included in a
disposal group that is classified as held for sale) in accordance with
AASB 5.
Disclosure
General
118. An entity shall disclose the following for each class of intangible
assets, distinguishing between internally generated intangible
assets and other intangible assets:
(a) whether the useful lives are indefinite or finite and, if finite,
the useful lives or the amortisation rates used;
(b) the amortisation methods used for intangible assets with
finite useful lives;
(c) the gross carrying amount and any accumulated
amortisation (aggregated with accumulated impairment
losses) at the beginning and end of the period;
(d) the line item(s) of the income statement in which any
amortisation of intangible assets is included;
(e) a reconciliation of the carrying amount at the beginning and
end of the period showing:
Other Information
128. An entity is encouraged, but not required, to disclose the following
information:
(a) a description of any fully amortised intangible asset that is still
in use; and
(b) a brief description of significant intangible assets controlled by
the entity but not recognised as assets because they did not meet
the recognition criteria in this Standard.