Examples of intangibles under IFRS

Intangibles under IFRS can be classified into five parts.

  • The separate acquisition of intangibles.

  • Internally generated intangibles.

  • Acquisition as part of a business combination.

    Acquisition through a government grant.

  • Intangible due to exchange assets.

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We will see several examples of each classification.

Example separate acquisition of Intangibles in IFRS

According to paragraph 27 of IAS 38, the cost of an intangible asset acquired separately comprises:

Its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.

Any directly attributable cost of preparing the asset for its intended use.

EXAMPLE 1 :

In January of year 1, an entity acquired facial recognition software to improve security within the company; the cost of the asset is as follows:

Acquisition price: 200,000

Recoverable taxes: 15,000

Non-recoverable taxes: 20,000

Discounts: 35,000

For the intangible to work properly, it is necessary to perform a calibration; this costs 12,000

As part of the staff training in software management, the company incurred 8,000.

What is the total cost of the asset?

The calculation is shown below.

Acquisition price: 200,000

Non-recoverable taxes: 20,000.

Discounts: (35,000)

Software calibration: 12,000

Total asset cost: 197,000

The total intangible cost does not include the recoverable taxes, since paragraph 27 of IAS 38 prohibits the accounting recognition of this element as a higher value of the asset.

Besides, the paragraph of this standard also leaves outside the costs of introducing a new product or service, including costs of advertising and promotional activities.

Costs of conducting business in a new location or with a new class of customers, including staff training costs.

And administration and other general overhead costs

EXAMPLE 2 :

An entity acquired a commercial brand worth 500,000 from its competition company.

With this acquisition, the company seeks to increase its sales by 20% and its share in the market.

The brand is legally registered in the entity’s name as of its acquisition.

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