Intangible Assets: Definition, Composition, and Accounting Treatment

Posted on May 15, 2024 in Economy

I. Introduction

The treatment of intangible assets has become a traditionally sensitive issue due to the complexity of their nature and their identification, which brings difficulties in their recognition and measurement.

II. Definition and Composition

Intangible assets are non-monetary assets without physical substance susceptible to economic valuation. This category also includes advances delivered to suppliers for intangible assets.

Features:

  • Intangible nature, but sometimes represented by securities.
  • For accounting recognition, a financial transaction resulting in disbursement is required.
  • Their justification is based on their ability to generate future returns.
  • They are amortized. Lifetime = years during which they generate benefits.

Subjectivity necessitates that limits are imposed.

Elements:

  • (200: Research)
  • (201: Development)
  • (202: Administrative concessions)
  • (203: Industrial Property)
  • (204: Goodwill)
  • (205: Rights of transfer)
  • (206: Applications)
  • (209: Advances to Intangible Fixed Assets)

Recognition and Assessment Criteria:

  • NRV 5: Intangible Fixed Assets
  • NRV 6: Special rules on intangible assets.

Recognition:

For the initial recognition of an intangible asset, in addition to the definition of assets, the following criteria must be met:

  • It is separable, meaning it can be sold.
  • It arises from legal or contractual rights.

III. Administrative Concessions

Costs incurred for the acquisition of rights for research or exploitation granted by the State or other administrations.

  1. Time of Granting: XxX (202) C. Management at Bank c/c (572) XxX
  2. Amortized under: XXX (680) Amortization Intangible Assets to Amortization AII (280) XxX

IV. Industrial Property and R&D

Amount paid for the ownership or right to use or grant the use of various forms of industrial property. It is available to others and developed internally.

a) Acquired from third parties:

  1. Time of Granting: XxX (202) C. Management at Bank c/c (572) XxX
  2. Amortized By: XxX (680) Amortization Intangible Assets to Amortization AII (280) XxX

b) Internally Developed: Research + Development

  1. Research: Inquiry planned to pursue original and discover new knowledge and superior understanding of existing ones. Account (200)
  2. Development: Practical application of research achievements to a particular plan. (201)
  3. Accounting treatment of R&D activity: According to NRV 6, the cost of research will be expensed in the period incurred. Intangible assets will be capitalized as they meet the following criteria:
    • Being identified by projects and their cost clearly established in order to spread out over time.
    • Having sound reasons for success and commercial economic profitability of the project.

They will be amortized over their useful life for a period of 5 years.

Industrial Property:

Capitalized development costs are accounted for here when they obtain the relevant patent, including the cost of registration and formalization of industrial property. They must be subject to amortization and valuation adjustments generally:

  1. On the expenditure included: (640) and (620) and (600) to (572)
  2. If there is external support: (620) to (572)
  3. At the close, when triggered: (200) and (201) (730)
  4. If you enroll in the RPI: (203) to (201) and (200)
  5. If questions arise to success: (67) Loss Proc. inm intan at (200) and (201)
  6. It pays: (680) to (280) max. 5 years for (R&D)

V. Applications

Amount paid for the ownership or right to use software, both purchased and developed by third parties in the company. Also includes web pages.

In no event may maintenance costs of the software application appear in the asset. Similar accounting treatment for R&D, but note (206).

VI. Value Adjustments

According to NRV 5, you cannot correct upward the initial value of the intangible asset, but it must be adjusted for two reasons: amortization and impairment losses.

NRV 5 stipulates that the company must assess if the intangible asset has an indefinite useful life or a defined one. Assuming it is indefinite, it will be amortized, but deterioration must be analyzed whenever there are indications of it, and at least annually. Conversely, if it has a limited useful life, it will be amortized: (680) to (280)

Impairment losses are obtained by comparing the book value – accumulated amortization, with the recoverable amount.

  • Correction: Vc – Recoverable Amount.
  • Recoverable Amount:> between net realizable value and value in use.

Accounting entry: Vc – VAT (690) to (290) VT – Impairment Loss

Revision entry: (290) to (790)