CMA Final · Corporate Financial Reporting

Intangible Assets (Ind AS 38): formula sheet

Full chapter guide

Key formulas

Definition test (three parts): Intangible asset = Identifiable + Controlled + Future economic benefits; All three must be met. Failing any one means the cost is expensed (or becomes part of goodwill in a business combination).
Two-stage recognition: Recognise only if: (a) definition met (paras 8–17) AND (b) recognition criteria met (paras 21–23); Applies to initial costs and to later costs to add to, replace part of, or service the asset (para 18).
Control: Control = power to obtain benefits + ability to restrict others' access; Normally from enforceable legal rights, but legal enforceability is not essential (para 13).
Failed item treatment: Fails definition → expense when incurred; if acquired in a business combination → part of goodwill; Para 10.
Subsequent expenditure on brands etc.: Brands, mastheads, publishing titles, customer lists → always profit or loss; Para 20, whether acquired externally or internally generated.
Website costs: Website solely or primarily for promoting own products/services → expense all costs; Appendix A, para 8. A website that can generate revenue, such as taking orders, may be recognised if para 57 is met.
Cost of separately acquired intangible: Cost = Purchase price (incl. import duties and non-refundable taxes) − trade discounts and rebates + directly attributable costs of preparing the asset for intended use; Refundable taxes, such as recoverable input tax credit, are not part of cost.
Business combination: Cost = Fair value at acquisition date; Recognised separately from goodwill, whether or not the acquiree had recognised it.
Government grant: Either fair value (asset and grant both at fair value), or nominal amount + directly attributable expenditure; The choice comes from Ind AS 20. If you recognise at fair value, extra disclosures apply.
Exchange of assets: Cost = Fair value, unless no commercial substance or fair value not reliably measurable; then cost = carrying amount of asset given up; Applies to exchanges for non-monetary assets or a mix of monetary and non-monetary assets.
Fair value definition: Price received to sell an asset in an orderly transaction between market participants at the measurement date; Ind AS 113 gives the detailed measurement rules.
Research phase: Research expenditure → expense when incurred; Includes obtaining new knowledge and searching for, evaluating and selecting alternatives.
Development phase: Development expenditure → intangible asset only if all six criteria are met; Technical feasibility, intention, ability to use or sell, probable future benefits, adequate resources, reliable measurement.
Cost of internally generated asset: Cost = Σ expenditure incurred from the date the criteria are first met; Earlier expenditure already expensed cannot be reinstated.
Directly attributable costs: Materials and services + employee benefit costs + fees to register a legal right + amortisation of patents and licences used; Selling, general administrative overheads and similar costs are not directly attributable.
Phases not distinguishable: Cannot separate research from development → treat all as research; The whole project spending is expensed.
Never recognised: Internal goodwill, brands, mastheads, publishing titles, customer lists → not assets; Spending is expensed as incurred.
Cost model carrying amount: Cost − accumulated amortisation − accumulated impairment losses; Applies when the entity chooses the cost model, or to an asset in a revalued class that has no active market.
Revaluation model carrying amount: Fair value at revaluation date (active market) − later accumulated amortisation − later accumulated impairment losses; Revalue often enough that the carrying amount is not materially different from fair value at the reporting date.
Revaluation increase: Credit OCI (revaluation surplus), unless it reverses an earlier decrease of the same asset recognised in profit or loss; To the extent it reverses an earlier loss in profit or loss, the increase is recognised in profit or loss.
Revaluation decrease: Debit profit or loss, except to the extent of any credit balance in revaluation surplus for that asset, which is debited first (OCI); The surplus is tracked asset by asset.
Surplus realised through use: Amortisation on revalued amount − amortisation on historical cost; May be transferred to retained earnings, not through profit or loss. The whole surplus may be transferred on retirement or disposal.
Class rule: One class = one model, unless no active market for an asset; Such an asset is carried at cost less amortisation and impairment.
Depreciable amount: Depreciable amount = Cost − Residual value; Residual value is assumed to be zero unless a third party has committed to buy the asset at the end of its life, or there is an active market from which it can be determined and it is probable that such a market will exist at the end of the life (para 100).
Straight-line amortisation: Annual amortisation = (Cost − Residual value) ÷ Useful life in years; Use this when the pattern of consumption of benefits cannot be determined reliably (para 97). Apply it for part years on a time basis.
Units of production amortisation: Amortisation for the year = (Cost − Residual value) × Units produced in the year ÷ Total expected units; One of the methods named in para 98. Choose it when benefits are consumed in line with output.
Impairment loss: Impairment loss = Carrying amount − Recoverable amount, if carrying amount is higher; Recoverable amount is determined under Ind AS 36. No loss arises if recoverable amount is equal to or above carrying amount.
Indefinite-life asset: No amortisation. Impairment test every year and whenever there is an indication of impairment; Paras 107 and 108. A change to finite life is a change in estimate (para 109) and is itself an impairment indicator (para 110).
Revision of estimate: New annual charge = (Carrying amount − Revised residual value) ÷ Remaining useful life; A change in life, method or pattern is a change in accounting estimate under Ind AS 8, applied prospectively (para 104).
Gain or loss on derecognition: Gain / (Loss) = Net disposal proceeds − Carrying amount; Carrying amount = cost (or revalued amount) − accumulated amortisation − accumulated impairment. Recognise in profit or loss; gains are not revenue.
Derecognition triggers: Derecognise on (a) disposal, or (b) no future economic benefits expected from use or disposal; Paragraph 112. If nothing is received, the whole carrying amount is a loss.
Amortisation until disposal: Amortisation continues until fully amortised or classified as held for sale (Ind AS 105); Idle or unused does not stop amortisation of a finite-life asset.
Replaced part: Derecognise carrying amount of the replaced part when the replacement cost is capitalised; If the carrying amount of the replaced part cannot be determined, the cost of the replacement may be used as an indication of its original cost.
Reacquired right reissued: Use the related carrying amount, if any, to determine gain or loss on reissue; Applies to a reacquired right in a business combination later sold to a third party.

Quick revision

An intangible asset needs identifiability, control over a resource and future economic benefits.
If an item fails the definition, the spend is expensed when incurred. If acquired in a business combination, it forms part of goodwill.
Internally generated assets are split into a research phase and a development phase.
Cost of an internally generated asset is spend from the date the recognition criteria are first met.
Spend already expensed cannot be reinstated later as part of cost.
Directly attributable costs include materials and services used, employee benefit costs, fees to register a legal right and amortisation of patents and licences used to create the asset.
Not part of cost: general overheads (unless directly attributable), identified inefficiencies and initial operating losses, and staff training costs.
Internally generated goodwill is never recognised, as it is not an identifiable resource that can be measured reliably at cost.
Subsequent spend on brands, mastheads, publishing titles, customer lists and similar items is always expensed.
Most subsequent spend only maintains benefits, so it is rarely capitalised.
Amortisation of a finite-life asset continues when it is idle, unless it is fully amortised or held for sale.
Impairment is tested under Ind AS 36: loss equals carrying amount minus recoverable amount.

Common mistakes

Capitalising training costs and a skilled workforce as intangible assets. Fix: Remember para 15: an entity usually has insufficient control over skilled staff and training, so expense them.
Saying legal enforceability is always required for control. Fix: Para 13 says legal enforceability is not a necessary condition. Control can arise in other ways, but it is harder to show.
Including refundable taxes such as recoverable input tax in cost. Fix: Include only import duties and non-refundable purchase taxes. Treat recoverable taxes as a receivable or credit.
Not deducting trade discounts and rebates from the purchase price. Fix: Always deduct trade discounts and rebates first. Then add duties and attributable costs.
Capitalising development spending incurred before the criteria were met. Fix: Capitalise only from the date all six criteria are first met. Earlier spending stays an expense and cannot be reinstated.
Capitalising research costs because the project later succeeded. Fix: Research spending is always an expense. Success later does not change this.
Revaluing a patent or brand using a valuer's estimate. Fix: Fair value must come from an active market. The standard says an active market cannot exist for brands, patents, trademarks and similar unique assets.
Revaluing only one asset in a class. Fix: Revalue the whole class, unless an asset has no active market. Such an asset stays at cost less amortisation and impairment.
Amortising an indefinite-life intangible asset. Fix: Remember para 107: no amortisation. Test for impairment every year instead.
Treating indefinite life as meaning infinite life or no impairment test. Fix: Indefinite means no foreseeable limit to net cash inflows. The annual impairment test under para 108 is mandatory.

Exam tips

In case-scenario MCQs, name the failed element: identifiability, control or future benefits.
For written answers, give the treatment first, then the paragraph reason, in two or three lines.
Learn the usual failing items: skilled staff, training, customer relationships, market share and advertising-only websites.
Always say 'expense when incurred' for failed items, and 'part of goodwill' if acquired in a business combination.
Check the scope exclusions before applying Ind AS 38 to any item.
Write the acquisition route first. Examiners award marks for choosing the correct rule.
In purchase problems, list each item as included or excluded with a reason. This earns partial marks even if the total is wrong.
For grant questions, mention both Ind AS 20 options. Then compute the one the question requires.