Question

ABC has spend 1.8 million in developing a new software for its payment system for the period of 1 Jan 2015-31 Dec 2016. The company is able to demonstrate that from 1 July 2016 the production process met the criteria for recognition as an intangible asset. The financial year end is 31 Dec. During 2016, the total training cost to improve the employees skill were 300,000£. A focus group of other retail banking providers was invied to a conference of the introduction of the new software in 2016. Cost of the conference was 100,000£. In 2016, ABC acquired another rival company XYZ for a total sum of 200 million. At this date a brand valuation expert valued XYZ brand at 40 million on the basis of useful life of 20 years. Other net assets were deemed to have a fairu value of 125£ million. Explain, how the costs given above should be treated in the financial statement of ABC for the year ending 31 Dec 2016 in relation to intangible assets per IAS38.

Answer 1

IAS 38 requires an entity to recognise an intangible asset, whether purchased or self-created (at cost) if, and only if: [IAS 38.21]

• it is probable that the future economic benefits that are attributable to the asset will flow to the entity; and
• the cost of the asset can be measured reliably.

Cost of computer eligible to be treated as intangible asset-1.8 million

expenditure on training to staff for internally generated intangible asset is not eligible for capitalization (para 67 (c))

costs of introducing a new product or service (including costs of advertising and promotional activities) are not part of value of intangible asset (para 29(a)

so value of Computer software to be capitalized in 2016 = 1.8 million

if an intangible asset is acquired in a business combination, the cost of that intangible asset is its fair value at the acquisition date. so the cost of branc to be recognised is 40 million (The fair value as per exprt valuation)