Question

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

Answer 1

Under IFRS costs incurred in internally developing intangible assets are divided into 2 phases

i. Research phase

ii. Development phase

Costs incurred in the research phase are usually expensed as incurred

Costs incurred in the development phase are can be capitalized subject to entity demonstrating following:

· The technical feasibility of the intangible asset so that it will be available for use

· Intention to complete intangible asset and use or sell it

· The ability of firm to use or sell it

· The intangible asset will generate the probable future economic benefit by demonstrating existence of market for external use or usefulness of intangible asset for internal use

· The availability of technical, financial and other resources to complete the development and use or sell the intangible asset

· The ability to measure reliably the expenditure attributable to the intangibles asset during its development

Internally generated intangibles which are capitalised should be amortized based on life of such asset. They must also be annually tested for impairment.

Under US GAAP both research costs and development costs incurred on internally generating Intangible assets are expensed, except that in certain circumstances it can be capitalized like business acquisition.