International Corporate Reporting: IAS 38 Intangible Assets Analysis

This report provides an overview of International Accounting Standard (IAS) 38, focusing on the accounting treatment of intangible assets. It examines the initial recognition and measurement of intangible assets acquired separately, as part of a business combination, and those generated internally. The report further analyzes four scenarios involving City Limits Plc, detailing the accounting treatment for licenses, patents, and brand value, including valuation methods like market-based, income, and cost approaches, as well as the application of amortization, impairment, and derecognition principles. The analysis offers recommendations for the financial controller, emphasizing the importance of proper valuation and accounting methods to accurately reflect the value of intangible assets in financial statements.

Running head: INTERNATIONAL ACCOUNTING STANDARD (IAS) 38 INTANGIBLE
ASSETS
International Accounting Standard (IAS) 38 Intangible Assets
Name of the Student
Name of the University
Author’s note

1INTERNATIONAL ACCOUNTING STANDARD (IAS) 38 INTANGIBLE ASSETS
Executive Summary
The report encircles about the use of intangible assets for a company by providing an
overview about them. The first report further discusses on the measurement and initial
recognition of intangible asset on the basis of International Accounting Standard (IAS) 38
intangible assets. The initial recognition and measurement were found out for the acquired
assets which were acquired separately for cash, as a part of business association or internally
generated. On the second report four scenarios were analysed which described accounting
treatment of three intangible assets that is, licences, patents and brand value. The correct
valuation for these assets have been recommended followed by their proper accounting
treatment. This was done to advise the financial controller about the correct valuation
methods and accounting treatments.

2INTERNATIONAL ACCOUNTING STANDARD (IAS) 38 INTANGIBLE ASSETS
Table of Contents
Report 1......................................................................................................................................2
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
Intangible Assets........................................................................................................................2
Separately for Cash....................................................................................................................2
As a part of business combination.............................................................................................2
Internally generated Intangible assets........................................................................................3
Conclusion..................................................................................................................................3
Report 2......................................................................................................................................4
Introduction................................................................................................................................4
Scenario 1...................................................................................................................................4
Accounting treatment.................................................................................................................4
Scenario 2...................................................................................................................................4
Accounting treatment.................................................................................................................4
Scenario 3...................................................................................................................................5
Scenario 4...................................................................................................................................5
Conclusion..................................................................................................................................5
References..................................................................................................................................6

3INTERNATIONAL ACCOUNTING STANDARD (IAS) 38 INTANGIBLE ASSETS
Report 1
Introduction
The objective of this report is to prepare an overview of intangible assets and the
treatment of intangible assets as given in the International Accounting Standard (IAS) 38.
The report primarily circles around the requirement given in IAS 38 intangible asset for the
initial recognition and measurement of the acquired intangible assets. In this context the
intangible assets are discussed separately for cash, or as a part of any business association and
the intangible assets which are internally generated.
Discussion
Intangible Assets
Intangible assets are defined as the non-monetary assets which are identified in the
financial statement of a company (Yallwe and Buscemi 2014). However, the treatment of
such assets are done as stated in the International Accounting Standard 38. Only separable
intangible assets are identifiable such as the assets which occur due to contractual and legal
rights. These separable assets are allowed to be sold, licensed or transferred. The examples of
intangible assets include trademarks, goodwill, copyright, licences and software (Carvalho,
Rodrigues, and Ferreira 2016). Requirements for Initial recognition and measurement of
Intangible assets with respect to IAS 38 Intangible Assets.
Separately for Cash
The intangible assets which are separately acquired are initially measured at cost
(Ifrs.org 2019). The cost elements of assets acquired individually constitutes of purchase
price, the duties that are levied on import, non-refundable purchase taxes which excludes
trade discounts and rebates. Another cost is the attributable cost for preparation of useful
assets.
As a part of business combination
The price of an intangible asset acquired as a part of business combination is
measured as its fair value on the date of its acquisition. Such an asset is classified as
separable or inseparable. For separable assets or assets which tend to occur due to any
contractual or legal right, the fair value of such assets are calculated with the help of the
sufficient information that come along with the particular asset (Ifrs.org 2019).

4INTERNATIONAL ACCOUNTING STANDARD (IAS) 38 INTANGIBLE ASSETS
Internally generated Intangible assets
a) The goodwill internally generated shall not be recognised as intangible asset.
b) An intangible asset through development should only be recognised based on its
technical feasibility, intention of completion, ability of usage or sale, and others.
c) Internally generated brands, published titles, and other similar items are not
recognised as intangible asset (Ifrs.org 2019).
The costs of these assets are measured as a sum of expenditure taken from the date of
recognition of the asset. If the expenditure has previously been recorded as expense,
such expenses cannot be reinstated.
Conclusion
From the above report it can be concluded that the intangible assets form an important
part of accounting. The recognition and measurement of three important acquired intangible
assets are described as followed in International Accounting Standard 38 for intangible
assets. The intangible assets taken into consideration are separately acquired cash, acquired as
a part of business combination, and internally generated intangible assets.

5INTERNATIONAL ACCOUNTING STANDARD (IAS) 38 INTANGIBLE ASSETS
Report 2
Introduction
The discussion of this report is to bring about an accounting treatment for the
intangible assets that were acquired by City Limits company. The report focusses on four
different kinds of scenarios which shows four different kinds of intangible assets acquired by
the company at the end of the financial year 2018. The proper valuation of the assets have
been provided followed by the accounting treatment of the intangible assets recognised by the
company.
Scenario 1
In this case, the company has acquired license which is recognised as an intangible
asset (Anokhina 2014). Here the license has a zero cost initially. Hence, through the
accounting principles the license could be valued by any of the three methods out of
market based approach, income approach and cost approach (Lehner, Majercakova
and Skoda 2015).
Accounting treatment
In this scenario the license has a useful life and hence its depreciable amount can be
allocated over its useful life. Amortisation shall start as soon as the asset can be used.
Amortisation will stop at the earlier date in which the asset is held for sale. The
amortisation charge will be recognised as a profit or loss.
Scenario 2
In this case the intangible assets acquired are the patents (Dudar and Voget 2016).
The patents are of cost €2 million and additionally €6 million. These patents can be
valued through income approach as the patents are bought as a result of an internally
developed technology. As it was evident that the patented product was a major
success for the company, the patent’s value would be the present cash value of the
future benefit.
Accounting treatment
The accounting treatment of patents would consider initial recognition, amortization,
impairment and derecognition. The recognition would be done through initial cost of
€2. Amortization would be done through straight-line method over the useful life.

6INTERNATIONAL ACCOUNTING STANDARD (IAS) 38 INTANGIBLE ASSETS
Impairment may not be required in this case as the patent is increasing in its value.
Derecognition may be followed as feasible by the company. If the asset is not
completely amortised during derecognition, the leftover balance may be shown as a
loss.
Scenario 3
The intangible asset acquired in this case is the brand name. Here the fair value won’t
be taken into consideration as brand name falls under the category of goodwill (Lim
Macias and Moeller 2018). Goodwill valuation cannot be done through fair value.
Accounting treatment
Brand name is difficult to be treated in accounting. Though in this scenario it has been
stated that the company has been valued at a fair value of €20 million, it may not be
of much significance as this is a hypothetical figure and the accountants may be
incorrect to properly account for the brands.
Scenario 4
In this scenario the intangible assets acquired are the patents (Smith and Smith 2014).
The patents are valued at the income approach as the patents are arising from the
company’s internal businesses.
Accounting Treatment
The patents are accounted firstly on the basis of initial recognition, that is €2.8
followed by amortisation of the asset at its useful life and then
impairment as the patents are decreasing their values. As the patents still have seven
years of useful life, the amount of depreciation can be allocated over its useful life.
Conclusion
From the above report it is advisable for the company to follow the above accounting
treatment in the above scenarios in order to have a proper value of its intangible assets. The
four different intangible assets have four different valuations as stated. The financial
controller of City Limits should properly follow such valuation methods to value their
intangible assets correctly.

7INTERNATIONAL ACCOUNTING STANDARD (IAS) 38 INTANGIBLE ASSETS
References
Anokhina, K., 2014. Structure and classification of intangible assets in industrial
enterprises. Socio-economic research bulletin, (4), pp.13-17.
Carvalho, C., Rodrigues, A.M. and Ferreira, C., 2016. The recognition of goodwill and other
intangible assets in business combinations–The Portuguese case. Australian Accounting
Review, 26(1), pp.4-20.
Dudar, O. and Voget, J., 2016. Corporate taxation and location of intangible assets: patents
vs. trademarks. ZEW-Centre for European Economic Research Discussion Paper, (16-015).
Ifrs.org. 2019. IFRS . [online] Available at: ifrs.org/issued-standards/list-of-standards/ias-38-
intangible-assets/ [Accessed 19 Jul. 2019].
Lehner, O.M., Majercakova, D. and Skoda, M., 2015. Fair value in financial statements after
financial crisis. Journal of Applied Accounting Research.
Lim, S.C., Macias, A.J. and Moeller, T., 2018, June. Intangible assets and capital structure.
In Paris December 2016 Finance Meeting EUROFIDAI-AFFI.
Smith, S.R. and Smith, K.R., 2014. The journey from historical cost accounting to fair value
accounting: the case of acquisition costs. Journal of Business & Accounting, 7(1), pp.3-10.
Yallwe, A.H. and Buscemi, A., 2014. An era of intangible assets. Journal of Applied Finance
and Banking, 4(5), p.17.