Intangible Non-Current Assets and Amortisation

Objective A & B: Intangible Assets

An intangible asset is an identifiable non-monetary asset without physical substance. Unlike tangible assets (which you can touch — buildings, machinery, vehicles), intangible assets are non-physical but still provide future economic benefits.

Examples of intangible assets include:

• Patents — legal rights to an invention
• Trademarks and brand names — legal rights to a name or logo
• Copyrights — legal rights to creative works
• Licences and franchises — rights to operate in a certain way
• Development costs — costs of developing new products (if criteria are met)
• Computer software — purchased or internally developed
• Goodwill — arising on business combinations (covered in Section H)

Objective C & D: Research and Development (IAS 38)

IAS 38 distinguishes between research and development:

Research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge. Research costs must always be expensed as incurred because the future economic benefits are too uncertain.

Development is the application of research findings to a plan or design for the production of new or substantially improved products, processes, or services. Development costs may be capitalised as an intangible asset, but ONLY if ALL six criteria are met:

1. Technical feasibility of completing the asset
2. Intention to complete and use or sell it
3. Ability to use or sell it
4. The asset will generate probable future economic benefits
5. Availability of adequate resources to complete development
6. Ability to measure the expenditure reliably

If any criterion is not met, the expenditure must be expensed. Once capitalised, development costs are amortised over the period of expected benefit.