The key reason for excluding such items as assets is the interpretation of the

The key reason for excluding such items as assets is

This preview shows page 2 - 4 out of 9 pages.

The key reason for excluding such items as assets is the interpretation of the term ‘control’ as used in the definition of an asset. According to paragraph 13 of IAS 38, control normally stems from ‘legal rights that are enforceable in a court of law’. In the absence of legal rights, it is more difficult to demonstrate control.
Image of page 2

Subscribe to view the full document.

13.2. Recognition and initial measurement . After determining that an asset exists and that it meets the definition of an intangible asset, the asset must meet the two criteria in paragraph 21 of IAS 38 before it can be recognised. The criteria are: 1. It´s probable that the future economic benefits attributable to the asset will flow to the entity; 2. The cost of the asset can be measured reliably . In relation to the initial measurement of an intangible asset, paragraph 24 of IAS 38 states: An intangible asset shall be measured initially at cost. With the reliable measurement of cost as one of the recognition criteria, this cost forms the basis for initial measurement. These recognition criteria and the requirement for initial measurement should be viewed as general principles only. Having established these criteria, IAS 38 then proceeds to examine the accounting for intangibles based upon how these assets were generated. The standard analyses intangibles in terms of four ways in which an entity could have obtained the assets : - Separate acquisition; - Acquisition as part of a business acquisition; - Acquisition by way of a government grant; - Internally generated assets. For each of these situations, IAS 38 provides specific recognition criteria and measurement rules. 13.2.2. Separate acquisition . In recognizing assets acquired separately, paragraph 25 of IAS 38 notes that: The probability recognition criterion in paragraph 21(a) is always considered to be satisfied for separately acquired intangible assets. The price paid for the asset automatically takes into account the probability of the expected benefits being received; hence, it is unnecessary to apply a further probability test. For example, if an asset had expected cash inflows of £1000, and the probability of these inflows being received was 40%, then an acquirer would pay £400 for the asset. The standard setters argue that these benefits are now automatically probable. Further, IAS 38 states: In addition, the cost of a separately acquired intangible asset can usually be measured reliably. This is particularly so when the purchase consideration is in the form of cash or other monetary assets. An intangible asset acquired separately is initially measured at cost. In summary, where a for-profit entity acquires an intangible asset as a separate asset, there is only one recognition criterion to be applied, namely reliable measurement of the cost of the asset.
Image of page 3
Image of page 4
  • Fall '17
  • tangible assets, Intangible asset

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask 0 bonus questions You can ask 0 questions (0 expire soon) You can ask 0 questions (will expire )
Answers in as fast as 15 minutes