Venize F.

Villar
BSA 4-1
INTANGIBLE ASSET

Definition: PAS 38, paragraph 8, An intangible asset is an identifiable

nonmonetary asset without physical substance. The intangible asset must be
controlled by the entity as a result of past event and from which future economic
benefits are expected to flow to the entity.
Initial Measurement: PAS 38, paragraph 24, provides that an intangible asset
shall be measured initially at cost. The cost of an intangible asset depends on the
following:
a.
b.
c.
d.
e.

Separate acquisition
Acquisition as part of a business combination
Acquisition by way of government grant
Acquisition by exchange
Acquisition by self-creation or internal generation

Measurement subsequent to acquisition: cost model and revaluation models

allowed
a. Cost model. After initial recognition intangible assets should be carried at
cost less accumulated amortization and impairment losses. [IAS 38.74]
b. Revaluation model. Intangible assets may be carried at a revalued amount
(based on fair value) less any subsequent amortization and impairment
losses only if fair value can be determined by reference to an active market.
[IAS 38.75] Such active markets are expected to be uncommon for intangible
assets. [IAS 38.78] Examples where they might exist:
a. production quotas
b. fishing licenses
c. taxi licenses
Subsequent expenditure
Due to the nature of intangible assets, subsequent expenditure will only rarely meet
the criteria for being recognized in the carrying amount of an asset. [IAS 38.20]
Subsequent expenditure on brands, mastheads, publishing titles, customer lists and
similar items must always be recognized in profit or loss as incurred. [IAS 38.63]
Disclosure
For each class of intangible asset, disclose: [IAS 38.118 and 38.122]
a.
b.
c.
d.
e.
f.

useful life or amortization rate

amortization method
gross carrying amount
accumulated amortization and impairment losses
line items in the income statement in which amortization is included
reconciliation of the carrying amount at the beginning and the end of the
period showing:

1. additions (business combinations separately)

2. assets held for sale
3. retirements and other disposals
4. revaluations
5. impairments
6. reversals of impairments
7. amortization
8. foreign exchange differences
9. other changes
g. basis for determining that an intangible has an indefinite life
h. description and carrying amount of individually material intangible assets
i. certain special disclosures about intangible assets acquired by way of
government grants
j. information about intangible assets whose title is restricted
k. contractual commitments to acquire intangible assets
Additional disclosures are required about:
intangible assets carried at revalued amounts [IAS 38.124] the amount of
research and development expenditure recognized as an expense in the current
period [IAS 38.126]

Problem:
An entity developed a patent at cost of P200,000 and spent P120,000 for the
licensing of the patent including legal fees and cost of models and drawings that
accompany the registration on January 1, 2014. The patent will be useful for the
entire legal life of 20 years.
On January 1, 2016, the entity paid P18-.00 to attorneys for the services in
connection with a successful defense of the patent.
On January 1, 2017, the entity purchased a competing patent for P170,000 in order
to protect the original patent.
On December 31, 2017, the product covered by the patent was withdrawn from sale
under a government order because of potential hazard in the product.
Write all the necessary journal entries.