11.2.3: Intangible Assets- Subsequent Measurement
- Page ID
- 100524
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)After the initial recognition and measurement, subsequent measurement is as follows:
- ASPE–Cost model only
- IFRS–Cost model. If the intangible asset has its fair values determined in an active market, then the Revaluation model can be used. The Revaluation model is not widely used in actual practice since an active market for intangible assets usually does not exist.
The accounting treatment under both models is applied the same way as is applied to property, plant, and equipment. Since intangible assets rarely have an active market to provide readily available fair values, discussions in this chapter will focus on the cost model.
Cost Model
- Asset is initially recorded upon acquisition at its cost.
- Subsequently, its carrying value will be at cost less accumulated amortization and accumulated impairment losses since acquisition, if any.
- On disposal, its carrying value is removed from the accounts and any gain or loss (sales proceeds minus the carrying value) is reported in net income.
An intangible asset with a limited useful life will be amortized over its estimated useful life, like plant and equipment, as follows:
- Amortization can be calculated using the units of production or straight-line methods, but usually assuming a residual value of zero (unless it can be sold to a third party). The method to use is determined using similar criteria as plant and equipment. Nearly all intangible assets are amortized using the straight-line method with no residual value unless there is compelling evidence to prove otherwise.
- Estimating useful life considers criteria such as expected use of the assets, any limits imposed by law, statute, or contract, and the impact on value from obsolescence and technology advances. If a patent has a legal life of twenty years but expects a competing product to emerge in fifteen years, then the useful life would be the lesser of the two, or fifteen years.
- Amortization begins and ends according to when the asset is ready for use and when it is to be disposed of or sold.
- Amortization policy is reviewed in terms of the asset's useful life, amortization method, and residual value, if any.
- Changes in useful life, residual value (if any), and amortization method are changes in accounting estimates and accounted for prospectively.
- Intangible assets are reviewed for impairment at the end of each reporting period (IFRS), or whenever circumstances indicate that the carrying value of the asset may not be recoverable (ASPE).
If the intangible asset has an indefinite life, no amortization is recorded, but it will be subject to review at the end of each reporting period. Should this status change to a definite life, it is treated as a change in estimate and accounted for prospectively. Indefinite life assets are also subject to impairment reviews and adjustments.