Complete detection of all IFRS 3 intangibles

Complete detection of all IFRS 3 intangibles explains it all, because detecting intangible assets can be a complex and challenging matter. Strategies to detect identifiable intangible assets vary depending on the facts and circumstances of the business combination and usually require a full review of the transaction. It is important to understand the business of the acquiree, what intangible resources it depends on and how these may translate into identifiable intangible assets. It should be possible to explain the acquired business in terms of the resources it uses to generate profits and how these are reflected in the acquiree’s assets and liabilities. In other words ask the question: what has been paid for?

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Impairment of intangible assets

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Possible impairment of intangible assets has to be assessed on a periodical basis. Intangible assets are tested for impairment when there is indication that they might be impaired. Indicators of impairment include legal restrictions, business restructuring, development of new technology, economic changes, etc. Impairment of intangible assets

Impairment test for intangible assets is the same as that for a tangible fixed asset:

  1. comparing the carrying amount of the asset, and Impairment of intangible assets
  2. the higher of fair value (less cost to sell) and value in use. Impairment of intangible assets

If b) is lower than a) that difference is recognized as impairment. Impairment of intangible assets

Impairment test for goodwill is a little more complex. The … Read more

How is goodwill different from other intangible assets?

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How is goodwill different from other intangible assets? An asset, which has no physical existence such as corporate intellectual properties (patents, trademarks, business methodologies and copyrights), trademarks, patents, software, goodwill and brand recognition are known to be an “Intangible asset”. So goodwill is and is not an intangible asset. Goodwill is a residual, unidentifiable, not separable asset. Intangibles are not that but…. How is goodwill different from other intangible assets

Separate identifiable intangible assets acquired

That is because identifiable intangible assets acquired in a business combination are recognised separately from goodwill [IFRS 3 B31]. An intangible asset is ‘identifiable’ if it arises from contractual or other legal rights or if it is separable [IAS 38 12]. Under … Read more

IAS 38 Non-contractual customer relationships

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IAS 38 Non-contractual customer relationships, in Business Combinations, this is a intangible asset and is therefore recognised separately from goodwill, provided that its fair value can be measured reliably. This customer-related intangible asset does not arise from contractual or other legal rights, but meets the definition of an intangible asset because it is separable. IAS 38 Non-contractual customer relationships

IAS 38 Non-contractual customer relationships

If a customer relationship acquired in a business combination does not arise from a contract, the relationship is an intangible asset if it meets the separability criterion. Exchange transactions for the same asset or a similar asset provide evidence of separability of a non-contractual customer relationship and might also provide information about exchange prices that should be considered … Read more

Customer relationships Distributor Method

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Customer relationships Distributor Method is a valuation model to determine the value of the existing customer relationships portfolio in a business combination, in order to recognise it as an intangible assets other than goodwill. Customer relationships Distributor Method

The Distributor Method (DM) is not as commonly used as the Multi-period excess earnings method (MPEEM) to value the customer relationship asset, even though the DM is simply one application of the MPEEM. The main theory behind the DM is that “a business is composed of various functional components (such as manufacturing, distribution, and intellectual property) and that market-based data may be used, if available, to reasonably isolate the revenue, earnings, and cash flow related to these … Read more

Expected attrition rate

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The expected attrition rate is used in valuing customer-related assets using the Multi-period excess earnings method (MPEEM), a discounted cash flow model, the valuation expert should identify the portion of revenue expected to be generated through repeat customers existing as of the valuation date. The estimated future revenue is derived from the revenue per customer and the number of retained customers. Because customer relationship assets derive value within a finite period, the number of customers providing repeat business is expected to decrease over time.

Measurement instrument

Attrition is the measurement of the rate of decay or loss of existing customers. The valuation expert may have to conduct a statistical analysis of historical customer turnover and revenue growth … Read more

History of intangible assets

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History of intangible assets – In November 1983, the International Accounting Standards Committee (IASC) approved the International Accounting Standards IAS 22 ‘Accounting for Business Combinations’ that contained the principles for accounting for goodwill. IAS 22, being concerned with business combinations, does not define goodwill. It also does not address the issues of revaluation of goodwill as well as accounting for internally generated goodwill.

For the purpose of improved international accounting standards (IASs), the IASC issued exposure draft (ED 32) “The Comparability of Financial Statements” in January 1989. ED 32 proposed amendments to IAS 22 as well as other IASs. The draft defined goodwill as the difference between the cost of acquisition and the fair values of net … Read more


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The separability criterion means that an acquired intangible asset is capable of being separated or divided from the acquiree and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, identifiable asset or liability.

An intangible asset that the acquirer would be able to sell, license or otherwise exchange for something else of value meets the separability criterion even if the acquirer does not intend to sell, license or otherwise exchange it.

The separability criterion is of importance because it is one of the criteria to identify assets:

An asset is identifiable if it is either:

  1. separable, i.e. is capable of being separated or divided from the entity and sold, transferred, licensed, rented
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Intangible assets

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Intangible assets are identifiable non-monetary assets without physical substance.

Intangibles can be grouped into three broad categories — rights, relationships and intellectual property:

  1. Rights. Leases, distribution agreements, employment contracts, covenants, financing arrangements, supply contracts, licences, certifications, franchises.
  2. Relationships. Trained and assembled  workforce, customer and distribution relationships.
  3. Intellectual property. Patents; copyrights; trademarks; proprietary technology (for example, formulas, recipes, specifications, formulations, training programs, marketing strategies, artistic techniques, customer lists, demographic studies, product test results); business knowledge — such as suppliers’ lead times, cost and pricing data, trade secrets and know-how.

Internally generated intangibles cannot be disclosed on the balance sheet, but are often significant in value, and should be understood and managed appropriately. Under IFRS 3, only intangible … Read more

Intangible assets Example

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Intangible assets Example – Example accounting policy

Intangible assets, other than goodwill, include expenditure on the exploration for and evaluation of oil and natural gas resources, computer software, patents, licences and trademarks and are stated at the amount initially recognized, less accumulated amortization and accumulated impairment losses. Intangible assets Example

Intangible assets acquired separately from a business are carried initially at cost. An intangible asset acquired as part of a business combination is measured at fair value at the date of acquisition and is recognized separately from goodwill if the asset is separable or arises from contractual or other legal rights. Intangible assets Example

Intangible assets with a finite life, other than capitalized exploration and appraisal costs … Read more