Case-1-When should management recognise an intangible asset if it is made available over a period of time on an agreed schedule?

Entity A, a broadcaster, has paid a licence fee for the exclusive right to operate on a specific frequency band, the 3MHz to 15MHz band. The broadcast frequencies within the band will be made available to the entity over a period of time on an agreed schedule. Management will be able to use the frequencies as follows:

Year 1 3MHz – 6MHz Year 3 3MHz – 10MHz Year 4 3MHz – 15MHz

Case-2-Can management recognise as an intangible asset costs incurred to develop maps that are of use to the entity but have no external value?

Entity A is involved in telecommunications, and has a substantial distribution network that requires significant maintenance. Management maintains maps of the distribution system in hard copy form that enables maintenance crews to identify and locate assets that form the system. The entity incurred substantial costs in developing and maintaining these maps. The maps could not be sold or exchanged, as they are only of value to entity A.

Case-3-Can management capitalise customer lists?

Internally generated list-An entity has been in the market for many years and has built a list of customers with which it currently transacts. This list is very large and complete in terms of information about the customers. Management considers the list has a significant value.

Acquired list-The entity acquired a medium-sized competitor, which also has a large customer list with information such as name, address, contacts and average purchase amount. The customer list has a value and management could sell it to third parties.

Case-4-Can management recognise a sign-on payment as an intangible asset?

Entity B is involved in retail banking. The bank’s strategy is to diversify its services and expand its customer base. The first step in this plan is to establish an investment banking division. The bank is aware that it will need to recruit high-profile employees in order to attract new business quickly.The bank has made offers of employment to ten individuals. These offers have been accepted. The contracts are for a five-year period and include substantial sign-on bonuses, without any reimbursements if the employee leaves during the term of the contract.

Case-5-Can management automatically recognise an asset acquired in a business combination if a professional valuer can value the asset?

Entity A is in the retail business and has recently acquired another entity, B, which operates a similar type of business. An independent valuation of entity B’s business has been conducted, and management is using the valuation to assign value to the assets and liabilities for financial reporting purposes. The valuer has assigned a value of 250,000 to entity B’s customer list.Management is intending to recognise the customer list as a separate intangible asset in the acquisition balance sheet.

Case-6-Can management capitalise a premium paid to acquire a research activity as a separate identifiable intangible asset?

Entity P is involved in the pharmaceuticals industry, and has acquired a research institute from a university. The purchase consideration exceeds the fair value of the assets and liabilities because entity P has identified significant intellectual property within the institute that it expects to recover when the institute’s products are developed. The institute has been conducting research into the effects of ginger root in alleviating the symptoms of arthritis; there are no similar products on the market. Entity P does not plan to change the operation of the institute. The research is at an advanced stage and the institute expects to trial a product within the next two years.

Management is planning to recognise the premium paid for the business as a separate identifiable intangible asset.

Case-7-Can management recognise expenses incurred as part of a management buy-in as an intangible asset?

Entity A’s management has bought another entity from the previous owners . Expenses were incurred during the acquisition in respect of the issue of equity shares, the issue of debt, and consultants’ and lawyers’ fees. Management proposes that the expenses are capitalised as intangible assets, since the restructuring to be undertaken by the new owners will lead to increased economic benefits for the entity.

Case-8-Can management recognise an intangible asset arising from a development project when further expenditure is subject to board approval?

Entity A is involved in the distribution of electricity in California. Its distribution network covers 100,000 hectares. The entity is particularly concerned about its contribution to bushfires, as heat generated from the system has been identified as a major cause of these fires.

Entity A’s research and technology division is in the process of developing an infrared camera that may be attached to a helicopter. The camera is capable of identifying hot-spots in the system, and will enable management to take preventative action.

Management has spent 100,000 to date and expects to spend a further 300,000 to complete the project. The board has approved expenditure of a further 50,000, but some members remain unconvinced by the project.

Case-9-What are the circumstances an under which management may capitalise internally- developed software?

Entity A is in the power generation and distribution business. Management is conducting an overhaul of the reporting, distribution and asset-tracking systems. Management has purchased several software systems and plans to customize and integrate them for its own use.

The customisation will take eighteen months to complete at a cost of 500,000. Management will use internal and external resources to complete the project.

Case-10-Can management capitalise development costs not separately attributable to a project or product?

A major supplier that produces confectionary has two lines of business: chocolates and candies. The chocolates unit comprises five brands of products, and the candies unit has three brands.Management is continually analysing how to innovate and attract new customers. It incurs expenditure related to research and development of new products, such as investigation of customer preferences, designs of variations to current products and designs of new products.Management incurred research and development expenditure of 1 million for the chocolates unit, and 1.6 million for the candies unit during the year.

Management could not allocate the expenditure separately to any specific product in each line of business. It considered the expenditure as general for each line of business.

Case-11-When can management carry an intangible asset at revalued amount?

An entity acquired a number of radio frequency licences, which it has capitalised in accordance with the requirements of IAS 38. The licences give the entity a contractual right to broadcast exclusively on specified radio frequencies for the next ten years. The licences can be sold to third parties.Due to the limited availability of these licences, and the commercial success of the radio stations using those frequencies, management considers the value of the licences to be considerably more than carrying amount and intends to revalue them. The entity has conducted a valuation using a professional qualified valuer.

Case-12-Can management recognize the license as an indefinite life asset

The broadcasting licence is renewable every 10 years if the entity provides at least an average level of service to its customers and complies with the relevant legislative requirements. The licence may be renewed indefinitely at little cost and has been renewed twice before the most recent acquisition. The acquiring entity intends to renew the licence indefinitely and evidence supports its ability to do so. Historically, there has bee no compelling challenge to the licence renewal. The technology used in broadcasting is not expected to be replaced by another technology at any time in the foreseeable future. Therefore, the licence is expected to contribute to the entity’s net cash inflows indefinitely.