Intangible Asset and Financial Asset
Intangible Asset and Financial Asset
Intangible Asset and Financial Asset
Intangible Assets
MFRS 138
Intangible Asset
Intangible asset is an identifiable nonmonetary asset without physical
substance.
MFRS
138
Para 11,
12
MFRS
138
Para
13
MFRS
138
Para
17
Para11 & 12 -
Identifiable
Para 13 -
Control
Para 17 -
Para21
(ii)
: The recognition criteria
*Expected future economic benefits will flow to entity
*Cost of asset can be measured reliably
Acquisition of
Intangible Assets
Corporate A
Corporate B
Para 25
-The price reflect expectations about profitability which expected
future economic benefits of asset will flow to the entity.
-The cost can be measured reliably (either in the form of cash or
other monetary assets).
Para 27 - Cost
Purchase Price:
-Import duties
-Non-refundable
purchase taxes
-After deducting trade
discounts and rebates
Directly Attributable
Costs:
-Costs of employee benefits
-Professional fees from
bringing asset to working
condition
-Costs of testing
Para 29
Para 30
Example:
Aston Ltd acquires new energy efficient technology that
will significantly reduce its energy costs for
manufacturing. Cost incurred include:
Cost of new solar tech
1,500,000
Trade discount
200,000
Training course for staff in new tech
70,000
Initial testing of new tech
20,000
The cost that can be recognized and capitalized is:
Losses incurred while other parts of plant shut down
Cost of new solar tech
during testing & training
1,500,000
30,000
Less trade discount
(200,000)
Plus initial testing
20,000
Para 44
Airport landing
rights
Gaming
rights
Para 45
If the fair value of acquired or transferred asset can be
measured
reliably:
Fair Value
Cost
(Acquired Asset)
(Acquired Asset)
proscribes the
recognition of internally
generated goodwill as an
intangible.
Reasons:
*not separable and any costs
incurred are unlikely to be
specifically identifiable as
Other
intangible
assets
Researc
h phase
Developme
nt phase
Research phase
Para 54
Development phase
Para 57
Para 67
(a)Selling, administrative and other general overhead
expenditure
(b)Identified inefficiencies and initial operating losses incurred
before the asset achieves planned performance
(c)Expenditure on training staff to operate the asset
Example:
An entity is developing a new production process. During 2015,
expenditure incurred was 1m of which 900,000 was incurred before 1
Dec 2015 and 100,000 was incurred between 1 Dec 2015 and 31 Dec
2015. At 1 Dec 2015, the production process met the criteria for
recognition as an IA. The recoverable amount of know-how embodied in
the process (including future cash outflows to complete the process before
it is available for use) is estimated to be 500,000. What is the cost of
internally generated IA at the end of 2015?
ANSWER: 100,000
EXPLAINATION:
The production process is recognized as an IA at a cost of 100,000 at
the end of 2015 because expenditure incurred since the date when
recognition criteria were met, i.e. 1 Dec 2015. 900,000 incurred
before 1 Dec is recognised as expense and it does not form part of cost
of the production process recognised in the statement of financial
position.
Continued:
Recognized as Expense
Para 68
Expenditure on an IA shall be recognized as an expense when it incurred, unless:
-It forms part of the cost
-The item is acquired in a business combination and cant be recognized as an
intangible asset. It forms part of the amount recognized as goodwill at the
acquisition date.
Examples include:
(a)Start-up activities or opening a new facility/business
(b)Training
(c)Advertising & promotional activities
(d)Relocating or reorganizing of entity
Cost
Model
Revaluation
Model
Para
74
Cost
Model
Carrying
Value
Para
75
Cost of
Intangible
Assets
Revaluation
Model
Carrying
Value
Accumulated
Amortisation
Revalued
Amount
Accumulated
Impairment
Subsequent
Accumulated
Amortisation
Subsequent
Accumulated
Impairment
Revaluation Model
Para
Para
Guidelines
of
Revaluation
Model
Para
81
Para
82
Useful
life???
OR
The number of production or similar units
expected to be obtained from the asset by
an entity.
Useful Life
Para
88
An entity shall assess the useful life of
intangible
assets to be either:
Finite Useful
Life
Indefinite Useful
Life
Factors Considered in
Determining Useful Life of
Intangible Assets
Finite-lived Intangible
Assets
Amortization Methods
Straight-line
Method
Unit of Production
Method
Diminishing Balance
Method
Finite-lived Intangible
Assets
Amortization
Methods
Revenue-based
Method
Appropriate when expected future revenues are a reliable proxy for the
economic benefits embodies in the asset & the pattern in which the
benefits
are
expected
be an
consumed.
A measure
of the
results ofto
using
asset rather than a measure of the economic benefits
embodied within the asset.
Example:
An entity that has a 5 years exclusive license to distribute a product. In the first year
the entity decides not to distribute the product because it wants to achieve maximum
sales from a previous generation product. In this case, the license represents a single
right to distribute the product for a finite time period and it is appropriate to amortize
the license in the first year because the product could have been distributed, ie the
benefits inherent in the license were available and have diminished by a fifth
regardless of the actions of the entity. This is consistent with the requirement in MFRS
138.97 for amortization to commence when the intangible asset is available for use.
KPMG Publication:
In the Headlines Proposal to ban Revenue-based
Amortization
Publication date: December 2012
IASB proposes to amend IAS 16 (PPE) & IAS 38 (IA) to state that
Revenue-based methods of amortization cannot be used.
Under this method, the profile of amortization expense reflects the
profile of revenues generated through use of the asset.
Media sector often used this method to amortize their IA.
Because films & video games often generate
higher revenues in the earlier years of their life
It tends to accelerate expense
recognition
Continue
Example of fact pattern:
o An entity has programme rights that last for 4 years, which cost 400 to
acquire.
oThe programme rights are expected to generate total revenue of 800,
and the
programme is expected to run 6 times over 4 years.
oActual revenue
Amortization
as follows:Charges Based on
Reven and
Runsruns are
Different Methods:
ue
Year 1
500
Year 2
200
Year 3
75
Year 4
25
Total
800
KPMG Publication:
In the Headlines Restricting the use of Revenue-based
Amortization
Publication
date: May 2014
On 12 May 2014, the IASB issued amendments to clarify that the Revenue-based
methods are permitted to be used when revenue & consumption of the economic
benefits of IA are highly correlated, or when the IA is expressed as a measure of
revenue.
Implications?
Changing to adopt straight-line amortization method, media companies are
likely to recognize less amortization and therefore higher profit in earlier
years.
However, additional impairment charges may arise when there is
significant decline in future cash flows after the early years of an assets
Finite-lived IA:
Para
94
Para
96
Significant
Cost?
Finite-lived IA:
Residual Value
Para
94Residual value (RV) = Zero, unless:
There is a commitment by a third party to purchase
the asset at the end of its useful life
OR
There is an active market:
(i)RV can be determined by reference to the market; and
(ii)The market will exit at the end of the assets useful life
Indefinite-lived Intangible
Assets
Para
88
Para
107
Para
108
Compare recoverable
amount & carrying
amount
Para
109
On
disposal
OR
When no future economic benefits are expected from its use its
use or disposal
Gain/Loss
Recognize in
P&L
Disclosure
The main disclosures are (distinguish between internally-generated
intangibles & other intangibles):
Scenario 1:
No
impairment
loss
recognize.
-Because RV
> CV
Finite
FiniteFinite
Continue
Source: Media Prima, 2014
Finite
Scenario 1:
Impairment
loss had been
recognized.
Continue
Source: Malaysia Airports, 2014
Disclosure
An entity shall also disclose:
FINANCIAL
INSTRUMENTS
OVERVIEW
DEFINITIONS
FINANCIAL
INSTRUME
NT
CLASSIFICATIONS &
RECLASSIFICATIONS
MEASUREMENTS
WHAT IS FINANCIAL
INSTRUMENT?
(MFRS 132)
LIABILITY OR EQUITY
Note Receivable
Note payable
Investment in Bond
Bond
FINANCIAL
ASSET
cash
contractual right
to receive cash or
another financial
asset from another
entity
to exchange financial
assets or financial
liabilities with
another entity under
conditions that are
potentially favourable
to the entity
FINANCI
AL
INSTRUM
ENT
Not
Cover
FINANCIAL
LIABILITY
& EQUITY
CLASSIFICATION
OF
FINANCIAL
ASSET
RULE BASED
APPROACH
VS
PRINCIPLE BASED
APPROACH
MFRS 139
Amortised Cost
Fair Value
MFRS 9
Held to maturity
Amortised Cost
MEASUREME
NT
Busines
s model
MFRS 9 Para
4.1.2
AMORTISED
COST
Objective is to hold
financial asset in
order to collect
contractual cash
flows
MFRS
Para
FAIR9VALUE
4.1.2A
THROUGH
OTHER
COMPREHENSIV
E INCOME
(FVTOCI)
Objective is achieved by
both collecting
contractual cash flows
and selling financial
assets
MFRS
9 Para
FINANCIAL
4.1.4
ASSETS AT FAIR
VALUE
THROUGH
PROFIT OR
LOSS (FVTPL)
A financial asset
shall be measured
at fair value
through profit or
loss unless it is
measured at
amortized cost in
accordance with
paragraph 4.1.2 or
at fair value
through other
comprehensive
income in
accordance with
Company B
EXAMPLE 2: FVOCI
Company A
Company B
EXAMPLE 3 : FVTPL
Company A
Company B
RECLASSIFICATIO
N
OF
FINANCIAL
INSTRUMENTS
MEASUREMENT
CATEGORY BEFORE
RECLASSIFICATION
MEASUREMENT
CATEGORY AFTER
RECLASSIFICATION
IMPACT
Amortized Cost
FVTPL
FVTPL
Amortized Cost
Amortized Cost
FVOCI
FVOCI
Amortized Cost
FVTPL
FVOCI
FV on reclassification date
= new gross carrying amount
Calculate EIR based on new gross
carrying amount
FVOCI
FVTPL
FV on reclassification date
= new gross carrying amount
MEASUREMENTS
OF FINANCIAL
ASSETS
MEASUREMENT OF FINANCIAL
ASSET
MFRS
9
FVTPL
FVOCI
AMORTIZED COST
Initial measurement
Fair Value
Fair value
Transaction Cost
Fair value
Transaction Cost
Subsequent
Measurement
Fair Value
Fair Value
Amortised Cost
Profit or loss
Other
Comprehensive
Income
Not Recognize
FVOCI
AMORTIZED COST
Fair Value
RM 1000
RM 1000 + RM 70
= RM 1070
RM 1000 + RM 70
= RM 1070
RM 70 will be
recognize in
Statement of Profit or
Loss as Expense
FVTPL
FVOCI
AMORTIZED COST
Fair Value
Fair Value
Amortized Cost
RM 1000
RM 1000
RM 1070
RM 70 will be recognize
in Other Comprehensive
Income as Unrealized
Gain or Loss
FVTPL
FVOCI
AMORTIZED COST
Fair Value
Fair Value
Not Recognize
RM 1100
RM 1100
RM1100 RM1000 =
RM100
RM 100 will be
recognize in Statement
of Profit or Loss as Gain
in Changes in Fair Value
RM1100 RM1000 =
RM100
RM 100 will be recognize
in Other Comprehensive
Income as Unrealized
holding gain or loss
RECOGNITION
AND
DERECOGNITION
OF FINANCIAL
INSTRUMENTS
RECOGNITION
Describe what, when and how an item should be recorded
in the financial statements
Entity shall recognize a financial asset or financial liability when
and only when the entity becomes a party to the contractual
provisions of the instrument
(MFRS 9, PARA 3.1.1)
TRADE DATE
SETTLEMENT
DATE
TRADE DATE
Trade date is the date an entity commits itself to purchase
or sell an asset. Trade date accounting refer to :
a.
b.
payment accur
Delivary
of asset
within a
timefra
me
TRADE DATE
SETTLEMENT DATE
25/11/2014
30/11/2014
5/12/2014
Company APPLE
commits to purchase
a Corporate Bond
from Company
Samsung for RM1000
settlement date
31/12/2014
Fair value of the
corporate bond is
RM1002
TRADE DATE
ACCOUNTING
29/11/2014
DR
CORPORATE BOND
PAYABLE FOR COMPANY
SMSG
1000
SETTLEMENT DATE
ACCOUNTING
CR
DR
CR
NO ACCOUNT ENTRY
100
0
31/12/2014
31/12/2014
NO ACCOUNT ENTRYRECOGNIZE
BOND
04/01/2015
PAYABLE FOR COMPANY
SAMSUNG
CASH
29/11/2014
NO ACCOUNT ENTRY
04/01/2015
1000
1000
CORPORATE BOND
CASH
RECOGNIZE
BOND
1000
1000
SETTLEMENT DATE
ACCOUNTING
DR
CR
29/11/2014
CORPORATE BOND
PAYABLE FOR COMPANY SMSG
29/11/2014
1000
NO ACCOUNTING ENTRIES
1000
RECOGNI
ZE BOND
31/12/2014
CORPORATE BOND
GAIN/LOSS ON CHANGING
FAIR VALUE ( PnL)
2
2
04/01/2015
PAYABLE FOR COMPANY SMSG
CASH
CORPORATE BOND
GAIN/LOSS ON CHANGING FAIR
VALUE (PnL)
DR
1000
1000
1
1
CR
31/12/2014
RECEIVABLE
2
GAIN/LOSS ON CHANGING FAIR
VALUE ( PnL)
RECOGNIZE
04/01/2015
BOND
CORPORATE BOND
1003
CASH
1000
RECEIVABLE
2
GAIN/LOSS ON CHANGING FAIR
1
VALUE (PnL)
REVERSE
DERECOGNITION DEFINITION
Derecognition is the removal of a previously recognized
financial asset or liability from an entity's balance sheet.
A financial asset should be derecognized if either the
entity's contractual rights to the asset's cash flows have
expired or the asset has been transferred to a third
party (along with the risks and rewards of ownership).
If the risks and rewards of ownership have not passed to
the buyer, then the selling entity must still recognize
the entire financial asset and treat any consideration
received as a liability.
PRINCIPLES OF
DERECOGNITION
(MFRS
9,
3.2.2)
Only specifically identified cash flows from a
financial asset.
Transfer
the
contractual
rights to receive the cash
flows of the financial asset
No
Transf
er of
rights
?
Yes
No
Oblig
ation
to
pay
CF?
Yes
Risk/R
eward
transf
er?
No
Risk/Re
ward
retaine
d?
No
Yes
No
Derecognition
Yes
Derecognition
Continue to recognize
Contr
ol
retain
ed?
No
Yes
Derecognition
Continue to recognize