Section 16: Intangible Assets (AASB1061_04-26)

This section applies to intangible assets, except when paragraph 1.5 or another section of this Standard requires or permits a different accounting treatment. 

An intangible asset is an identifiable non-monetary asset without physical substance. Such an asset is identifiable when it either: 

(a) is separable, ie capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, asset or liability; or 

(b) arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.

An entity shall record an intangible asset as an asset when it is purchased by, or donated to, the entity.

An intangible asset shall initially be measured at cost. However, if an intangible asset was donated to the entity, that entity may elect to initially measure the asset either at: 

(a) its cost to the entity (which might be nil, a nominal amount or another significantly discounted amount); or 

(b) its fair value as at the date of donation, measured in accordance with Section 11. Any resulting increase in intangible assets is recorded as donation income (revenue) in accordance with Section 20.

The cost of an acquired intangible asset comprises: 

(a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates; and 

(b) any directly attributable cost of preparing the asset for its intended use.

An entity shall record expenditure incurred internally on an intangible item, including all expenditure for both research and development activities, as an expense when it is incurred.

As examples of applying paragraph 16.6, an entity shall write off expenditure on the following items immediately as an expense and shall not record such expenditure as intangible assets: 

(a) internally generated brands, logos, publishing titles, customer lists and items similar in substance; 

(b) start-up activities (ie start-up costs), which include establishment costs such as legal and secretarial costs incurred in establishing a legal entity, expenditure to open a new facility (ie pre-opening costs) and expenditure for starting new operations or launching new products or processes (ie pre-operating costs); 

(c) training activities; 

(d) advertising and promotional activities; and 

(e) relocating or reorganising part or all of an entity.

Paragraph 16.7 does not preclude recording a prepayment as an asset when payment for goods or services has been made in advance of the delivery of the goods or the rendering of the services.

Expenditure on an intangible item recorded as an expense shall not subsequently be recorded as part of the cost of an asset.

An entity shall choose either the cost model in paragraph 16.13 or the revaluation model in paragraphs 16.14 and 16.15 as its accounting policy and shall apply that policy to an entire class of intangible assets. Where an entity initially measures a donated intangible asset at fair value, this amount shall be regarded as its cost for the purposes of applying the cost model. 

A class of intangible assets is a grouping of assets of a similar nature and use in an entity’s operations. Notwithstanding paragraph 16.10, an entity shall apply the cost model to an intangible asset within a class of intangible assets measured under the revaluation model when the asset’s fair value cannot be measured by reference to an active market for the asset. 

An entity that changes its accounting policy from the cost model to the revaluation model for a class of intangible assets shall not subsequently revert to the cost model for those assets unless an active market for those assets no longer exists.

An entity shall measure an intangible asset after initial recording at cost less any accumulated amortisation and any accumulated impairment losses recorded in accordance with Section 22.

After initial recording, an entity shall measure an intangible asset for which fair value can be measured by reference to an active market at a revalued amount, being its fair value as at the date of the revaluation less any subsequent accumulated amortisation. Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value as at the reporting date. Section 11 provides guidance on determining fair value.

If an intangible asset in a class of revalued intangible assets is measured using the cost model because there is no active market for the asset, the carrying amount of that intangible asset when it ceases being traded in an active market shall be regarded as the asset’s cost for the purposes of applying the cost model. Applying the cost model to an intangible asset in these circumstances is not a change in accounting policy.

If the carrying amount of a class of intangible assets is increased or decreased as a result of a revaluation, the revaluation increase or decrease shall be recorded in the same manner as revaluation increases and decreases for classes of property, plant and equipment, as specified in paragraphs 15.15 and 15.16.

An entity shall allocate the depreciable amount of an intangible asset on a systematic basis over its useful life. The amortisation charge for each period shall be recorded in profit or loss, unless the entity elects, in accordance with Section 12 or Section 15, to include an appropriate portion of that charge in the cost of assets. Amortisation of an asset begins when it is available for use, ie when it is in the location and condition necessary for it to be usable in the manner intended by management.

All intangible assets shall be accounted for as if they have a finite useful life. The useful life of an intangible asset that arises from contractual or other legal rights shall not exceed the period of the contractual or other legal rights, but may be shorter, depending on the period over which the entity expects to use the asset. If the contractual or other legal rights are conveyed for a limited term that can be renewed, the useful life of the intangible asset shall include the renewal period(s) only if there is evidence to support renewal by the entity without significant cost. If the useful life of an intangible asset is indefinite, it shall be determined based on management’s best estimate but shall not exceed ten years.

An entity shall assume that the residual value of an intangible asset is zero unless: 

(a) there is a commitment by a third party to purchase the asset at the end of its useful life; or 

(b) there is an active market for the asset and: 

(i) residual value can be determined by reference to that market; and 

(ii) it is probable that such a market will exist at the end of the asset’s useful life.

If an intangible asset’s capacity to provide services has been affected adversely as a result of the entity either: 

(a) having changed its strategy; or 

(b) being affected by a reduction in external demand for its services; 

this might indicate that the residual value, useful life or pattern of consumption of the future economic benefits embodied in the intangible asset has changed since the most recent annual reporting date. If such indicators are present, the entity shall review its previous estimates and, if current expectations differ, amend the residual value, useful life or amortisation method. The entity shall account for the change in residual value, useful life or amortisation method as a change in accounting estimate in accordance with Section 9.

Amortisation of an asset ceases when the asset ceases to be recorded. Amortisation does not cease when the asset becomes idle or is retired from active use unless the asset is fully amortised. 

An entity shall select an amortisation method that reflects the pattern in which it expects to consume the asset’s future economic benefits. If the entity cannot determine a more reliable pattern, it shall use the straight-line method.

An entity shall cease recording an intangible asset, when: 

(a) it is sold or otherwise disposed of; or 

(b) no future economic benefits are expected from its use or disposal.

For the purposes of paragraph 16.23(b), an entity needs to consider the possibility that no future economic benefits are expected from the use or disposal of an asset only when the entity has changed its strategy or been affected by a reduction in external demand for its services and in either case the asset’s capacity to provide services might have been affected adversely as a result. 

An entity shall determine the gain or loss arising from ceasing to record an intangible asset as the difference between the net disposal proceeds, if any, and the carrying amount of the asset. An entity shall record the gain or loss in profit or loss in the reporting period in which the asset ceases to be recorded. The entity shall not classify such a gain as revenue. 

An entity shall disclose the following for each class of intangible assets: 

(a) the measurement basis used; 

(b) the carrying amount at the beginning and end of the reporting period; 

(c) increases or decreases resulting from revaluations recorded in other comprehensive income under paragraph 16.16; 

(d) impairment losses recorded in profit or loss and the related line item(s) in the statement(s) of profit or loss and other comprehensive income; and 

(e) amortisation.

An entity shall also disclose: 

(a) the existence and carrying amounts of intangible assets to which the entity has restricted title or that are pledged as security for loans; and 

(b) the amount of contractual commitments for the acquisition of intangible assets.

An entity shall disclose the aggregate amount of research and development expenditure recorded as an expense during the period.

If intangible assets are stated at revalued amounts, an entity shall disclose the effective date of the revaluation.

Where, in accordance with paragraph 16.4(a), an entity initially measures donated intangible assets at cost, it shall make the disclosures set out in paragraphs 15.30 and 15.31 in relation to donated intangible assets.