Accounting For Intangible Assets . This Standard will enable users of financial statements to understand the extent of an entity’s investment in such assets and the movements therein. The principal issues involved relate to the nature and recognition of intangible assets, determining their costs, and assessing the amortization and impairment losses that need to be recognized. Advertisement. In some cases, an intangible asset may be contained on or in a tangible item. Obvious examples are computer software, films, and licensing agreements. In such situations, judgment is required to determine which is the more significant element. In the case of a machine incorporating software that cannot be operated without the software, the entire item would be treated as property, plant, and equipment under IAS 1.

However, add- in software on a computer, such as some forms of report writing software or antivirus software, is not required for operating the tangible asset and therefore would be accounted under IAS 3. This Standard DOES apply to expenditure such as: advertising, training, start- up costs, research and development, patents, licensing, motion picture film, software, technical knowledge, franchises, customer loyalty, market share, market knowledge, customer lists, and the like. The Standard is to be applied in accounting for all intangible assets EXCEPT: Those that are within the scope of another Standard, Financial assets as defined in IAS 3. Mineral rights and expenditure on the exploration for, or development and extraction of, minerals, oil, natural gas, and similar non- regenerative resources. The Standard DOES NOT apply to those intangible assets covered by other Standards, such as: Intangible assets held for sale in the ordinary course of business (IAS 2), Deferred tax assets (IAS 1. Leases within the scope of IAS 1. Assets arising from employee benefit plans (IAS 1.

Through this post I discuss about capitalization and amortization of software cost. This discussion assumes that the reader has some familiarity with computers. Software companies should implement new Rev Rec Standard as Software industry is greatly impacted by Revenue Recognition Rules.

Financial assets covered by IAS 3. IAS 2. 7, IAS 2. 8, or IAS 3. Goodwill acquired in a business combination (IFRS 3), Deferred acquisition costs and intangible assets arising from insurance contracts (IFRS 4) (However, the disclosure requirements for such intangible assets are applicable), Noncurrent intangible assets classified as held for sale in accordance with IFRS 5.

• Transmittal Letter December 9, 2011 Honourable V. Chukuma Johnson Chairman, Public Accounts Committee Sierra Leone House of Parliament Tower Hill Freetown.
• AutonomyAccounts.org This website contains information from the former management team of Autonomy plc.

SAP is the world leader in enterprise applications in terms of software and software-related service revenue. Based on market capitalization, it is the world’s.

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Elaboration And Interpretation Of The Definitions. Identifiability – In order to meet the definition of an intangible asset, expenditure on an item must be separately identifiable in order to distinguish it from goodwill. An asset meets the identifiability criterion when it: Is capable of being separated from the entity and sold, transferred, licensed, or rented either individually or in combination with a related contract, asset, or liability; or. Arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or other rights or obligations. Control – An entity controls an asset if it has the power to obtain the future economic benefits flowing from the underlying resource and to restrict the access of others to those benefits. Usually this control would flow from legally enforceable rights. However, legal enforceability is not necessary if control can be enforced in some other way.

For example, one method of control is keeping something secret through employee confidentiality. Control needs to be looked at carefully. An entity may be able to identify skills in its workforce and to measure the costs of providing those skills to its staff (via training). However, the entity usually does not have control over the expected economic benefits arising from the skilled staff, as they can leave their employment. Even if the skills are protected in some way such that departing staff are not permitted to use them elsewhere, the entity has lost the future benefit of the skills imbued in the departing staff member. Similarly, the purchase of customer lists or expenditure on advertising, while identifiable, does not provide control to an entity over the expected future benefits. Customers are not forced to buy from the entity and can go elsewhere.

Future Economic Benefit – Future economic benefit may include revenue from the sale of products, services, or processes, but also includes cost savings or other benefits from use of an asset. Use of intellectual property can reduce operating costs rather than produce revenue.

Recognition And Measurement Of Intangible Asset. An item may be recognized as an intangible asset when it meets the definition of an intangible asset . The cost of separately acquired intangible assets comprises: Purchase price, including any import duties and non- refundable purchase taxes, less discounts and rebates; and. Directly attributable costs of preparing the asset for use.

Directly attributable costs can include employee benefits, professional fees, and costs of testing. How To Update Blackberry Os Curve 8520 Os. Costs that CANNOT be included are: Costs of introducing new products or services, such as advertising, Costs of conducting new business, Administration costs, Costs incurred while an asset that is ready for use is awaiting deployment, Costs of redeployment of an asset, Initial operating losses incurred from operation. Fact: In the corporate world, it is often noticed that entities spend huge sums of money on advertising campaigns to launch new products. Some multinational entities even hire famous performing artists or movie stars to act as brand ambassadors of the new products. Because the amounts spent on these advertising campaigns are so huge, these entities sincerely believe that the benefits from this promotion would last longer than a year and thus they are inclined to defer the costs of introducing new products over a period of two to three years. When the financial statements of these entities have to be audited, this is usually a contentious issue.

Auditors generally find it very difficult to convince the entity’s management that the Standard categorically disallows deferring such costs. Here are the rule of thumb to follow: If payment for an intangible asset is deferred beyond normal credit terms, then the cost is the cash price and the balance is treated as a finance charge over the period of the finance.

If intangible assets are acquired as part of a business combination, as defined in IFRS 3, their cost is their fair value at the acquisition date. The probability of future economic benefit is reflected in the fair value, and, therefore, the probability of future economic benefit required for recognition is presumed.

In a business combination, such intangible assets are to be recognized separately from goodwill. Assessing the fair value of an intangible asset in a business combination can be difficult; obvious techniques are the use of comparable market transactions or quoted prices. Sometimes there may be a range of values to which probabilities can be assigned. Such uncertainty enters into the measurement of the asset rather than demonstrating an inability to measure the value.

If an intangible asset has a finite life, then it is presumed to have a reliably measurable fair value. In some circumstances, it may not be possible to reliably measure the fair value of an intangible asset in a business combination because it is inseparable or there is no history or evidence of exchange transactions for the asset, and any fair value estimates would be based on immeasurable variables. If an intangible asset is acquired in exchange for another asset, then the acquired asset is measured at its fair value unless the exchange lacks commercial substance or the fair value cannot be reliably measured, in which case the acquired asset should be measured at the carrying amount of the asset given up, where carrying amount is equal to cost less accumulated depreciation and impairment losses. For impairment losses, reference should be made to IAS 3. In this context, any compensation received for impairment or loss of an asset shall be included in the income statement. Case Example: Lie Dharma Record Inc.

Capitalization And Amortization Of Software Cost. Political Activism Within The Hip Hop Community Center. In general, the software industry is viewed as having several sectors, including packaged applications (shrink- wrapped software); operating systems for individual and networked computers; administration tools for networks; enterprise software for large- scale data handling; and customized software to meet specific company and industry requirements. The software industry is unique, and its special characteristics should be understood by the accountant practicing in this field. Only with a clear understanding of the industry can the accountant properly apply the software industry’s specialized accounting practices. Advertisement. Through this post I discuss about capitalization and amortization of software cost.

This discussion assumes that the reader has some familiarity with computers, computer hardware, and computer software, and provides the information necessary to allow the accountant to actively participate in discussions affecting the accounting treatment of events occurring in the subject business. Broad Applicability of FASB Statement No. Financial. Accounting Standards Board (FASB) Statement No. Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, applies to the costs of both internally developed and produced software and purchased software to be sold, leased, or otherwise marketed.

Section 6. 5 discusses AICPA Statement of Position 9. Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, which is applicable if the software is developed or obtained only for internal purposes. Software Products. Statement No. 8. 6’s accounting applies to costs of computer software products to be sold, leased, or otherwise marketed. The software products may be marketed separately or as firmware (as part of a product or process), even if the software is contained in a product having a software component that cannot function or be marketed separately from the overall product. Examples are software included in calculators and products of robotic technologies. It is sometimes difficult to determine whether Statement No.

In particular, it can be difficult to determine whether the applicable document is Statement No. SOP 9. 1- 1. The appendix to SOP 9. The “would nots” would be software covered by Statement No. A reasonable benchmark is that software covered by Statement No. This can occur either by the customer acquiring the software directly or acquiring the product that contains the software (e. Software products covered by Statement No.

Enhancements are defined as. Enhancements normally require a product design and may require a redesign of all or part of the existing product . In that publication, the response to question 1 provides the following additional descriptive notions about software products contemplated by Statement No. A software product is most easily defined by describing its necessary qualities. As a product, it is complete and has exchange value.

As software, it is a set of programs that interact with each other. A program is further defined as a series of instructions or statements that cause a computer to do work. As the capacity of semiconductor devices expands, it is becoming more common to see software being developed solely to be embedded in a semiconductor device or in hardware as firmware.

If software is to be marketed only as firmware or as part of a broader product, all research and development activities related to the broader product must be completed prior to capitalizing any of the related firmware development costs. Paragraph 5 of Statement No. Software production costs for computer software that is to be used as an integral part of a product or process shall not be capitalized until both ; (a)technological feasibility has been established for the software; and (b)all research and development activities for the other components of the product or process have been completed.

Thus, in certain situations, software development costs incurred after technological feasibility of the software has been achieved will, nevertheless, still have to be expensed as incurred. This would occur if the R& D activities have not yet been completed on the other components of the product (e. This accounting can also result if a software product is purchased for inclusion in a broader product. Question 1. 3 in the February 1.

FASB Highlights of Financial Reporting Issues, which included the views of the FASB staff on an array of Statement No. What factors, if any, may determine whether the cost of purchased software that will be integrated into another software or hardware product will be capitalized?”The FASB staff’s view was that the cost of purchased computer software with no alternative future use should be expensed if technological feasibility of the broader product to be marketed has not yet been established. Accordingly, those wishing to capitalize the cost of internally developed or purchased software to be included in a broader product should, to the extent possible, delay internal software development work or the purchase of software until after technological feasibility of the broader product has been established.

Computer Software Research and Development Costs. Costs incurred prior to establishing technological feasibility of a software product are research and development costs and should be charged to expense in accordance with FASB Statement No.

Accounting for Research and Development Costs. These costs include costs of planning, designing, coding, and testing that is necessary to establish that the product can be produced to meet its design specifications, including functions, features, and technical performance requirements. The FASB used the following definition of development in defining activities that should be considered software research and development. The translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use. It includes the conceptual formulation, design, and testing of product alternatives, construction of prototypes, and operation of pilot plants. It does not include routine or periodic alterations to existing products, production lines, manufacturing processes, and other ongoing operations even though those alterations may represent improvements, and it does not include market research or market testing activities . Engineering activity required to advance the design of a product to the point that it meets specific functional and economic requirements and is ready for manufacture .

If subsequent to the establishment of technological feasibility a high- risk development issue is discovered, any development costs that were capitalized for that product, and future costs incurred until the highrisk development issue is resolved, should be charged to research and development expense. After the high- risk development issue is resolved, and provided all other conditions for capitalization are met, capitalization should resume; previously written off capitalized costs, however, remain expensed as research and development costs. Determination of Technological Feasibility in General. The criteria for determination of technological feasibility and commencement of capitalization of software development costs may vary, depending on whether the development process includes or does not include the preparation of a detail program design. The basis for determination of technological feasibility in either case is discussed in the following sections: The determination of technological feasibility must be made for an entire software product. If a product includes more than one module and the modules are not marketable separately, the determination of technological feasibility must be made for the entire product, including all the modules, and not on a module- by- module basis.