1323 Acquisition as part of a business combination With respect to recognition

1323 acquisition as part of a business combination

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13.2.3 Acquisition as part of a business combination. With respect to recognition criteria to apply when intangible assets are acquired in a business combination, IAS 38 states that no recognition criteria need be applied. Provided the assets meet the definition of an intangible asset, they must be recognised as separate assets. As with separately
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acquired intangible assets, paragraph 33 of IAS 38 provides that, where intangible assets are acquired as part of a business combination, the effect of probability is reflected in the measurement of the asset. Hence, the probability recognition criterion is automatically met. Further, the requirement for reliability of measurement is always met as sufficient information always exists to measure reliably the fair value of the asset. In accordance with IFRS 3 Business Combinations , if an intangible asset is acquired in a business combination, the cost of that intangible asset is its fair value at the acquisition date . 13.2.4 Acquisition by way of a government grant . Option: - An entity may choose to initially recognise both the intangible asset and the grant at fair value, or; - it will recognise the asset initially at a nominal amount plus directly attributable costs. 13.2.5 Internally generated intangible assets . The measurement approach used is one of capitalisation of outlays incurred by the entity. Problem from accounting point of view with internally generated assets = determining at what point in time an asset should be recognised. An entity may outlay funds in an exploratory project, such as developing software to overcome a specific problem, or designing a tool for a special purpose. There is no guarantee of success at the start of the project. The program may not work or the tool may be unsatisfactory for the purpose. Should the accountant capitalise the costs from the beginning of the project, or wait until there is some indication of success? The standard setters' solution to the problem of when to begin capitalising costs is to classify the generation of the asset into two phases: the research phase and the development phase . Research phase = is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding. E.g.: the search for new knowledge or for alternatives for materials, devices, products, processes, systems or services. Development phase = the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use. E.g.: the design, construction and operation of a non-commercial pilot plant, and the design of pre- production prototypes and models.
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  • Fall '17
  • tangible assets, Intangible asset

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