Category Archives: 1.06 Intangible Assets

Incorporation expenses

When establishing your company, incorporating it by all relevant regulations etc., paying registration and whatnot fees, you encounter expenses.

Something that seems natural is to capitalize those expenses into your intangible assets and then amortize them into expenses over a period in time. Another method I’ve noticed is capitalizing them and bluntly leaving them there with an indefinite life.  Continue reading

Tangible and intangible assets

Assets are something you use in your business – either for production, supporting your business, housing your office etc.

For production purposes you may have machinery, equipment, for supporting your business you would use printers, computers and so on. Obviously another thing you may have for your business is an office, which if not being rented, is most probably also your asset. Now those are tangible assets. Tangible means that you can physically touch them since they do have a physical form.  Continue reading

Is the investment really worth it?

Buying something is easy, but is it really worth the money spent? Is the investment really a good investment? You should never make an investment that’s really not doing anything useful for your business.

First thing first, think about the purpose of the investment. What do you really needed it for? Is it for improving something, developing something or just in “I think we may find it useful” category?  Continue reading

Amortization of intangibles

When the management has determined a useful life to an asset, the depreciable amount (acquisition cost or carrying value less any residual value if applicable) is allocated on a systematic basis over its useful life. In other words the value is expensed over determined months using one of the two methods available.

First things first, the amortization starts when the asset is available for use and ceases when the asset is derecognized or reclassified as held for sale. The period between those two dates is the expected period of useful live. Continue reading

Useful lives of intangible assets

Every intangible asset must have a deemed period of its useful life. According to IAS 38 this can either be finite or indefinite. The judgment between those two is something that is done by the management based on their industry-wide knowledge, experience in the company and any other future perspectives that need to be considered. This is a management estimate and usually there cannot be a right or wrong answer. However, every estimate must be reasonable and reasoned.

Obviously an asset with finite useful life is amortized. This is now where the second judgmental area kicks in – the period itself. Will it be 2 or 20 years or something in between? There are a few things that ought to be considered when determining the period: Continue reading

Recognizing an intangible asset

Although the company may have identified an intangible asset, recognizing it on the balance sheet is another matter. Before the company may record the asset in its books, the company must be able to demonstrate that the asset meets the definition of an intangible asset and also the recognition criteria for such assets.

According to IAS 38 an intangible asset shall be recognized if, and only if it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and the cost of the asset can be measured reliably. As you may have understood, both those conditions have to be met obviously.
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Understanding the meaning of an intangible asset

Plainly speaking, an intangible asset is an identifiable non-monetary asset without physical substance. This should be fairly obvious from the name ‘intangible’. What this means really is the fact that you cannot touch or physically grasp the asset. What however is required prior you can talk of an asset is the requirement of identifiability – the company must be able to separate it from physical substance for an example and it must be ‘usable’ all on its own.
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