Financial Accounting II MGT401 idea solution 2011

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Charge all research cost to expense. [IAS 38.54] · Development costs are capitalized only after technical and commercial feasibility of the asset for sale [IAS 38.57] · Or uses have been established. This means that the entity must intend and be able to complete the intangible asset and either uses it or sells it and be able to demonstrate how the asset will generate future economic benefits. [IAS 38.57] · Purchased: capitalize Initial Recognition: In-process Research and Development Acquired in a Business Combination A research and development project acquired in a business combination is recognized as an asset at cost, even if a component is research. Subsequent expenditure on that project is accounted for as any other research and development cost (expensed except to the extent that the expenditure satisfies the criteria in IAS 38 for recognizing such expenditure as an intangible asset). Objective The objective of IAS 38 is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another IFRS. The Standard requires an entity to recognize an intangible asset if, and only if, certain criteria are met. The Standard also specifies how to measure the carrying amount of intangible assets and requires certain disclosures regarding intangible assets. [IAS 38.1] Scope IAS 38 applies to all intangible assets other than: [IAS 38.2-3] · financial assets · exploration and evaluation assets (extractive industries) · expenditure on the development and extraction of minerals, oil, natural gas, and similar resources · intangible assets arising from insurance contracts issued by insurance companies · intangible assets covered by another IFRS, such as intangibles held for sale, deferred tax assets, lease assets, assets arising from employee benefits, and goodwill. Goodwill is covered by IFRS 3. Key Definitions Intangible asset: an identifiable nonmonetary asset without physical substance. An asset is a resource that is controlled by the entity as a result of past events (for example, purchase or self-creation) and from which future economic benefits (inflows of cash or other assets) are expected. [IAS 38.8] Thus, the three critical attributes of an intangible asset are: