IFRS Made Easy by Steven M. Bragg

Author:Steven M. Bragg
Language: eng
Format: epub
Publisher: Wiley
Published: 2010-11-09T16:00:00+00:00

You must stop accumulating costs to be recorded as part of the intangible asset once it can be operated in the manner intended by management, in addition you cannot include the cost of initial operating losses.

If you defer payment for an intangible asset beyond normal credit terms, then record its purchase price as the cash price equivalent; record any cost above this amount as interest expense over the credit period.

Recognition of Intangible Assets Acquired in a Business Combination

If you acquire an intangible asset in a business combination, then record its fair value on the acquisition date as its cost. Use the four following valuation methods, which are presented in declining order of preference:

1. Bid price. The asset's bid price in an active market.

2. Most recent transaction. If there are no current bid prices but there is an active market, then use the price of the most recent similar transaction, unless there has been a significant change in economic circumstances since the transaction date.

3. Arm's-length transaction. If there is no active market, then use the amount that the entity would pay for the asset in an arm's-length transaction between knowledgeable parties. You should consider the outcome of recent similar transactions when deriving this amount.

4. Multiples or cash flows. Apply a multiple, such as a revenue or profit multiple, to the asset's cash flows that reflects current market transactions. Alternatively, calculate its discounted estimated future cash flows.

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