Ind AS 38 – Research and Development – INTANGIBLE ASSETS
Ind AS 38 outlines the accounting requirements for Intangible Assets. It requests that the asset to be recognized as a non-monetary asset other than physical money (either division or contract or other legal rights) to identify the assets. Intangible assets that meet the relevant identification criteria are initially measured at cost, then measured by cost or revaluation models, and are forgiven on a systematic basis for their useful lives (unless the property is indefinite There is no useful life, in which case it is not forgiven).The accounting treatment is similar to Ind AS 16 tangible assets for recognition & measurement of Intangible Assets Ind AS 38 except
- Internally generated goodwill
- Internally generated goodwill is not recognized since there is no basis for measurement.
- Internally generated intangible assets
- RESEARCH AND DEVELOPMENT PHASE
Research Phase is when all the costs incurred in this phase are expensed with no reversal in future and charged to profit & loss a/c
No intangible asset arising from research (or from the research phase of an internal project) shall be recognised.
Development phase- when an assets meets development stage criteria, any costs incurred thereafter are capitalized in the cost of internally generated intangible asset
An intangible asset arising from development shall be recognised if, and only if, an entity can demonstrate all of the following:
- the technical feasibility of completing the intangible asset so that it will be available for use or sale.
- its intention to complete the intangible asset and use or sell it.
- its ability to use or sell the intangible asset.
- how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.
- the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.
- its ability to measure reliably the expenditure attributable to the intangible asset during its development.
A company incurs research costs during the year beginning 1 April 2019, amounting to Rs. 1 crore till date.The entity met all the criteria of development stage on 1 oct 2019. The costs incurred after meeting the development till 31 March 2020 amounted to Rs. 1.5 crore.
How much cost should be capitalized as an intangible asset?
What about cost of Rs 1 Crore incurred before meeting the development phase criteria?
Intangible assets not yet available for use
The period in which internally generated intangible assets which has met development stage criteria is capitalized, there is no amortization on this asset, since there is no defined life at this stage.
So, intangible assets not yet available for use are tested for impairment annually regardless of indicators of impairment.
Intangible asset not yet available for use capitalized cost = Rs. 2,50,000
Recoverable amount = Rs. 2,40,000
Impairment loss = Rs. 10,000 charged to profit & loss a/c
- Intangible assets with indefinite life
An intangible asset with an indefinite is tested for impairment annually regardless of indicators of impairment.
There is no amortization charged on these assets.
- Intangible assets in a business combination
The Ind AS recognizes purchased goodwill, by comparing fair value of consideration with the fair value of net assets acquired.
The amount paid over and above the fair value of net assets is recognized as goodwill.
Goodwill is tested for impairment annually regardless of indicators of impairment
Fair value of considieration 400,000
Fair value of Net assets 3,00,000
Tested for impairment annually, regardless of indicators of impairment.
- Intangible assets not yet available for use
- Intangible assets with indefinite life
Reversal of research expenditure is not allowed.
IND AS 8 : Indian Accounting Standard 8
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