There are a number of differences between IFRS and U.S. GAAP for the treatment of intangible assets and impairments. The information related to intangible assets in IFRS is presented in IAS 38 (“Intangible Assets”) and IFRS related to impairments is found in IAS 36 (“Impairment of Assets”).
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Hi Professor and class,
According to our digital book, intangible assets are assets that are not physical in nature or financial tools. They are assets which provide value to businesses from using their rights and privileges. Since there are many kinds of intangible assets, they are separated into 6 main categories. They are marketing-related intangible assets, customer-related intangible assets, artistic-related intangible assets, contract-related intangible assets, technology-related intangible assets and goodwill. Kieso, D., Warfield, T. and Weygandt, J. define impairment as “measures the extent to which the book value of an intangible asset is greater than the fair value. An impairment is recorded for limited-life intangibles conditional on a recoverability test. Indefinite-life intangibles are assessed for impairment every period based on a fair value test”, (Intermediate Accounting, 16thEdition. 2016, pg. 657).
Here are 3 examples of the treatment of intangible assets and impairments under GAAP:
Costs for producing and repairing are normally recorded as an expense. “Exemptions include costs associated with computer software intended to be sold, Web site development, and computer software for internal use”, (International Accounting Standards, 2018).
For advertising, the expenses are recognized when incurred or the first-time advertising occurs.
For impairment charges, a reversal is prohibited.
Here are 3 examples of the treatment of intangible and impairments assets under IFRS:
Internally developed intangible assets are recognized under three circumstances:
- expected future benefits attached to the intangible asset will flow to the entity
- cost measurement is dependable
- certain other criteria are met (no further explanation given).
For advertising, the costs are normally recorded when they incur, unless expenses are related to payments made prior to the entity obtaining rights to access or receive goods or services.
“Impairment charges are reversed if there are subsequent changes in the recoverable amount, use of asset, or economic conditions”, (International Accounting Standards, 2018). The asset, however, should be re-valued at an amount no more than the carrying amount if no impairment loss existed.
Hello Professor and Classmates,
There are a number of differences in the recording of intangible assets under GAAP and IFRS such as research and development, revaluation of intangible assets and advertising costs.
Research and development costs under GAAP are expensed when they are incurred. The exception to this rule is when dealing with computer software with future revenue and web sites development as well as computer software for internal use.
Under IFRS, research and development cost are considered assets and capitalized. In order to be capitalized thought, they must meet certain criteria. The economic benefits of the attributable asset flows to the entity and the cost of the asset can be reliably measured.
Under GAAP, revaluation of intangible assets after they have been recognized is not allowed. Intangible assets are carried at historical cost minus accumulated amortization and impairment where under IFRS, the entity has the choice of either using the cost model or they can choose the revaluation model or the revalued or new fair value amount which is based on an active market, less amortization and impairment losses. Examples of intangible asset that can be revalued based on new market values are production quotas, fishing licenses and taxi licenses.
Advertising costs under GAAP are basically expensed either as the charges are incurred or the first time the advertising actually takes place. There are exceptions where advertising expense is recognized as an asset. Direct-response advertising and advertising cost expended after revenues related to those costs are recognized.
Under IFRS advertising costs are expenses as incurred. There is only one exception where the advertising costs is to be recognized as an asset and that is when the cost that is related to prepayment of advertising for which a prepaid asset would be recognized until an entity has gained a right to access the related goods or has received the related services.
There are several differences between the treatment for intangibles under GAAP and IFRS, but we’ve been asked to only identify 3. The first one is that IFRS does allow capitalization of the development costs from the R&D phase of a project once it has been determined to be economically useable. In this case, GAAP allows most items to only be expensed with only a few exceptions to the rule. The second is that IFRS does allow impairment losses to be reversed later when the economic situation has improved, where GAAP does not. The last difference is that IFRS does allow limited-life intangible assets to be revalued, if they do not have an indefinite-life. GAAP does not allow any intangible asset to be revalued regardless of its estimated life span.