IND AS 38 INTANGIBLE ASSETS | CA FINAL REVISION LECTURE | FR & AFM BY BHAVIK CHOKSHI

Summary

This video provides an in-depth overview of India's Ind AS 38 on intangible assets, explaining key characteristics such as lack of physical substance, non-monetary nature, and identifiability. It also explores special cases, including research and development expenses, human resources, and goodwill, highlighting when these can or cannot be recognized as intangible assets. The video further covers amortization, impairment testing, and the accounting principles behind intangible assets. Specific attention is given to the treatment of cryptocurrencies as intangible assets and the unique rules for capitalization and measurement under Ind AS 38.

Takeaways

• 😀 Intangible assets must lack physical substance, be non-monetary, and be identifiable.
• 😀 Identifiability means the asset must either be separable or arise from a contractual right (e.g., patents, telecom licenses).
• 😀 Intangible assets can be recognized if they are controlled by the entity and expected to provide future economic benefits.
• 😀 Research expenses must be expensed out as they do not meet the criteria for recognition as intangible assets.
• 😀 Development expenses can be capitalized if they meet criteria such as technical feasibility, market presence, and cost measurability.
• 😀 Goodwill is recognized under Ind AS 103 in business combinations but cannot be recognized as an intangible asset under Ind AS 38.
• 😀 Human resources are generally not recognized as intangible assets unless under specific contract conditions that imply control over the resource (e.g., player rights).
• 😀 Amortization of finite-life intangibles is required on a systematic basis, commonly using the straight-line method.
• 😀 Intangibles with indefinite life (e.g., goodwill) are not amortized but must be tested for impairment annually.
• 😀 Expenditures that increase the efficiency or extend the life of intangible assets should be capitalized; routine costs are expensed.
• 😀 Revaluation of intangibles is allowed only if the asset has an active market, which is rare for most intangible assets like patents and trademarks.

Q & A

What are the three key criteria for classifying an asset as an intangible asset?

The three key criteria are: (1) The asset must lack physical substance, meaning it cannot be touched, seen, or felt. (2) It must be non-monetary in nature, i.e., it doesn't represent a fixed or determinable right to receive cash. (3) It must be identifiable, meaning it can be either separable (able to be sold separately) or stem from a contractual right.

Why is identifiability considered the most important criterion for intangible assets?

Identifiability is the most important because it ensures that the intangible asset can either be sold separately or arises from a contractual right, making it distinct from other assets. Without identifiability, an asset cannot be recognized as an intangible.

Can goodwill be classified as an intangible asset under Ind AS 38?

No, goodwill is recorded under Ind AS 103 (Business Combinations) and is not classified as an intangible under Ind AS 38. It represents the difference between the purchase price and the net assets acquired and cannot be separated or sold independently.

What distinguishes a telecom license or franchise right as an intangible asset?

A telecom license or franchise right is classified as an intangible asset because it arises from a contract, granting rights that can be separated and sold, or may have a contractual basis that defines how it can be utilized by the entity, regardless of whether it can be transferred.

What is the treatment of research expenses under Ind AS 38?

Research expenses are always expensed in the profit and loss statement, as the future economic benefits are uncertain at the research stage. These expenses cannot be capitalized as intangible assets.

When can development costs be capitalized as intangible assets?

Development costs can be capitalized if they meet certain criteria, such as being technically feasible, legally permissible, having a market for the product, and having measurable costs. If these conditions are met, the development costs are recognized as an intangible asset.

How is amortization of intangible assets different from depreciation of tangible assets?

Amortization is the process of allocating the cost of an intangible asset over its useful or legal life, similar to depreciation for tangible assets. However, intangible assets are amortized systematically, and revenue-based amortization is generally not allowed unless the asset's value directly correlates with revenue generation.

What is the rule for amortizing intangible assets with an indefinite life?

Intangible assets with an indefinite life are not amortized. However, they must be tested for impairment annually, as their value may decrease over time, even though they are not subject to systematic amortization.

What does impairment testing involve for intangible assets?

Impairment testing involves comparing the carrying value of an intangible asset with its recoverable amount, which is the higher of fair value minus cost to sell or value in use. If the carrying amount exceeds the recoverable amount, an impairment loss is recognized.

Can cryptocurrency be classified as an intangible asset under Ind AS 38?

Yes, cryptocurrency can be classified as an intangible asset because it is not cash, legal tender, or a financial asset under current definitions. It is treated as an intangible asset unless future legislative amendments redefine it.