IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

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Chapter 30 / Intangible Assets (lAS 38)

9.S If the revaluation model is used , at the date of the revaluation, accumul ated amortization and impairment losses are either eliminated against the cost and then the net amount is uplifted to the revalued amount or are restated proporti onately to the restatement of the gross ca rry ing amount such that the net amount is equal to the fair value.

Case Study 4

$4,000 What journal entries are required at December 31, 20X2, to reflect the increase/decrease in carrying value (cost or revalued amount less accumulated depreciation) on the revaluation of the operating license based on the traded values of similar license? Also, what would be the resultant carrying value of the intangible asset after the revaluation? Solution The journal entries to be recorded in the books of account are Dr Intangible asset-accumulated amortization $4,000 Cr Intangible asset-eost (Being elimination of accumulated depreciation against the cost ofthe asset) The net result is that the asset has a revised carrying amount of $12,000 ( $10,000 - $4,000 + $6,000). 9.6 A revaluati on increase is to be classified as a part of equity unl ess it reverses a previo usly recogni zed imp airment loss, in which case it is credited to the income state me nt. If, in subseque nt years, revaluation decreases on the same asse t occ ur, such decreases may be dedu cted from the revaluati on reserve app licable to that asset. Oth erwise the reduction is to be charged against profit. 9.7 Any revaluation reserve in respect of a particular intangible ass et is transferred to retained ea rnings when it is real ized . Thi s cou ld be on disposal , although it is permitted to treat the add i– tional amorti zation resulting from the rev aluation as a rea lization of that surplus and tran sfer thi s amount from revaluation reserve to ret ained earnings. Under no circums tances can the revaluation reserve, or part thereof, be credited to the income statement. 10. USEFUL LIFE 10.1 The usefu l life of an intangible asset must be assessed on recognition as either indefinite or finite . If the assessment determines the life to be finite, then the length of life or numbe r of units to be prod uced must be determined also. An indefini te useful life may be determined when there is no foreseeab le limit to the period over whic h the entity will conti nue to receive economic benefit from the asset. All relevant factors must be considered in this assessment and may inclu de • Expe cted usage by the entity and whether it cou ld be used by new management teams • Product life cycles • Rates of technical or commercial change • Industry stability • Likely actions by compe titors • Legal restri ction s • Whether the useful life is dependent on the useful lives of other assets Active Asset Inc. owns a freely transferable taxi operator's license, which it acquired on January I, 20XI, at an initial cost of $10,000. The useful life of the license is five years (based on the date it is valid for). The entity uses the straight-line method to amortize the intangible. Such licenses are frequently traded either between existing operators or with aspiring operators. At the balance sheet date, on December 31, 20X2, due to a government-permitted increase in fixed taxi fares, the traded values of such a license was $12,000. The accumulated amortization on December 31, 20X2, amounted to $4,000. Required Dr Intangible asset-eost Cr Revaluation reserve (Being uplift ofnet book value to revalu ed amOll1lt) $6,000 $6,000