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In: Accounting

D4. Discuss whether internally generated intangible assets should be treated in the same way as acquired...

D4. Discuss whether internally generated intangible assets should be treated in the same way as acquired intangible assets.

Solutions

Expert Solution

Intangible asset is an asset without physical substance. It should be identifiable, Controllable, and must have future economic benefits.

Recognition criteria of intangible asset:

  1. It is probable that the future economic benefits and that will flow to the entity.
  2. The cost of the asset can be measured reliably.

Example:

  • Patent
  • Trademark
  • Royalty
  • Marketing right

Internally generated asset:

An enterprise classifies the generation of an asset into

  1. Research phase
  2. Development Phase

Research Phase:

Research is original and planned investigation to obtain new knowledge and understanding. No intangible asset arising from the research or research phase. Expenditure incurred in the research phase should recognize as expense in the same year.

Development Phase:

Development is an application of research findings. Expenditure incurred in the development phase recognized if and only if an enterprise can demonstrate the following:

  1. The technical feasibility of completing the asset
  2. Intention to complete the asset.
  3. Its ability to use or sell the asset
  4. The asset will generate future economic benefits.
  5. The availability of adequate technical and financial and other resources to complete the development.
  6. the cost can be measured reliably

Acquired intangible asset:

Acquired intangible assets can recognize at cost if they meet the recognition criteria of intangible assets.

  • It is probable that the future economic benefits and that will flow to the entity.
  • The cost of the asset can be measured reliably.

Internally generated intangible assets should not be treated in the same way as acquired intangible assets in case of recognition criteria but the case of the amortization period, amortization method, Retirement and disposal, etc have the same treatment.


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