Solutions to Gripping IFRS : Graded Questions Intangible assets Kolitz & Sowden-Service, 2009Chapter 11: Page 1 Solution 11.1 Part A An intangible asset is an identifiable non-monetary asset without physical substance. An asset is: •a resource, •controlled by the entity, •as a result of a past event, •from which future economic benefits are expected to flow. The market share does not have physical substance and is non-monetary and thus the issue is whether the market share is identifiable. An asset meets the identifiability criterion in the definition of an intangible asset when it •Is separable, or •Arises from contractual or other legal rights (IAS 38, p12) The market share is not separable from the business as a whole and it does not arise from legal rights. The market is a resource in that it generates sales for the company. The event was the creation of the customer loyalty that constitutes the market share (perhaps through entertainment, advertising etc). This event is a past event if the creation occurred before year-end. Future economic benefits can be expected from the market through sales made to customers that form part of the market. There is, however, little or no control over a market since a company’s market can be easily usurped by another company offering better products, service, advertising etc. Therefore, the market share should not be recognised as an intangible asset (not identifiable and not controllable). Part B An intangible asset is an identifiable non-monetary asset without physical substance. An asset is: •a resource, •controlled by the entity, •as a result of a past event, •from which future economic benefits are expected to flow. The patent and the staff skills are identifiable (sold, leased or rented out separately and/ or are identifiable through legal rights: registered patent). (IAS 38, p15) Both the patent and staff skills are non-monetary and do not have physical substance. Thus the issue is whether or not they meet the definition of an asset. The patent and staff skills are a resource in that they can be used to generate sales of software and services provided by their staff.
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