Intangible Assets Overview

Intangible Assets

• Intangible assets are identifiable non-monetary assets without physical substance
• Intangible Heritage Assets have characteristics:
  • Value in cultural, environmental, and historical terms is not fully reflected in market price
  • Legal/statutory obligations may restrict disposal
  • Value may increase over time
  • Useful lives can be several hundred years, making estimation difficult

Elements and Examples of Intangible Assets

• Identifiability: Separable from the entity, arising from binding arrangements
• Control over a resource
• Existence of future economic benefits or service potential
• Common examples include computer software, patents, copyrights, franchises, motion picture films, trademarks, brand names, licenses, acquired import quotas, lists of users of a service, and relationships with users of a service

Acquisition of Intangible Assets

• Acquired through:
  • Separate purchase/acquisition
  • Business/entity combination
  • Non-exchange transaction
  • Asset exchange
  • Self-creation (internal generation)

Measurement of Intangible Assets

• Separate Purchase/Acquisition:

  • Purchase price, including import duties and non-refundable taxes, after deducting discounts and rebates
  • Costs directly attributable to preparing the asset for intended use (employee benefits, professional fees, testing functionality)

• Entity Combination: Fair value on the date of acquisition

• Non-Exchange Transactions: Fair value at acquisition, unless neither the received nor given asset's fair value is measurable. If not measurable at fair value, the cost is measured at the carrying amount of the asset given up.

• Internally-Generated Intangible Assets:

  • Classification into Research (expensed) and Development (recognized) phases (PPSAS 31 para 55)
  • Recognized if and only if:
    • Technically feasible for use/sale
    • Intention to complete and use/sell
    • Ability to use/sell the intangible asset
    • Probable future economic benefits/service potential
    • Adequate technical, financial, and other resources
    • Ability to reliably measure expenditure during development

Example: Purchase of Intangible Assets

• Entity spent ¥5,600,000 (inclusive of VAT) on new software
• Useful life of 10 years, no residual value
• Account entries for purchase:
  • Computer Software: ¥5,600,000
  • Due to BIR: ¥350,000
  • Cash-Modified Disbursement System: ¥5,250,000

Example: Amortization

• Amortization at the end of the first year for the software:
  • Amortization - Intangible Assets: ¥1,120,000
  • Accumulated Amortization - Computer Software: ¥1,120,000

Example: Impairment Loss

• Carrying amount of Computer Software (after 3 years of amortization): ¥2,240,000
• Fair value (net of cost to sell): ¥2,200,000
• Impairment loss: ¥40,000
• Account entries for impairment loss:
  • Impairment Loss - Intangible Assets: ¥40,000
  • Accumulated Impairment Losses: ¥40,000

PPE (Property, Plant, and Equipment)

• Tangible assets acquired, constructed, or developed
• Held for use in production/supply of goods/services, program outputs, rental, or administrative purposes
• Expected use for more than one reporting period
• Not intended for resale in the ordinary course of operations

Capitalization Threshold (PPE)

• P15,000 minimum cost for individual PPE on the Statement of Financial Position.
• Exceptions exist for group of network assets and bulk acquisitions

This quiz covers the key concepts surrounding intangible assets, including their characteristics, elements, examples, and methods of acquisition. Test your knowledge on how intangible heritage assets function and their importance in business contexts.