341 / 488
332
Wiley lFRS: Practical Implementation Guide and Workbook
5.2 Initially, intangible assets shall be measured at cost. The cos t of sepa rately acquired intangi–
ble assets comprises
• Purchase price, including any import duties and nonrefundable purchase taxes, less discounts
and rebates ;
and
• Directly attribu table costs of preparing the asset for use.
5.3 Directly attributable costs can include employee benefits, professional fees, and costs of test–
ing.
5.4 Cos ts that
cannot
be included are
• Cos ts of introducing new products or services, such as adve rtising
• Costs of conducting new business
• Administration costs
• Cos ts incurred while an asse t that is ready for use is awa iting deployment
• Cos ts of redeployment of an asset
• Initial opera ting losses incurred from operation
Practical Insight
In the corporate world, it is often noticed that entities spend huge sums of money on advertis –
ing campaigns to launch new products. Some multin ational entities even hire famous per–
formin g artists or movie stars to act as brand ambassadors of the new products. Because the
amounts spent on these adve rtising campaigns are so huge, these entities sincerely believe that
the benefits from this promotion would last longer than a year and thus they are inclined to
defer the costs of introduc ing new products over a period of two to three years . When the fi–
nancial statements of these entities have to be audited, this is usually a contentious issue.
Auditors genera lly find it very difficult to convince the entity's management that the Stand ard
categorically disallows deferring such cos ts.
5.5 If payment for an intangible asset is deferred beyond normal credit terms, then the cost is the
cash price and the balance is treated as a finance charge over the period of the finance.
5.6 If intangible assets are acqui red as part of a business combina tion, as defined in IFRS 3, their
cost is their fair value at the acquisition date. The probabilit y of futur e economic benefit is reflected
in the fair value, and, therefore, the probability of future economic benefit required for recognition
is presumed. In a business combination , such intangible assets are to be recognized separately from
goodwi ll.
5.7 Assessing the fair value of an intangible asset in a business combination can be difficult ; ob–
vious techniques are the use of comparable market transactions or quoted prices. Sometimes there
may be a range of values to which probabilities can be assigned. Such uncertainty enters into the
measurement of the asset rather than demonstrating an inabil ity to measure the value. If an intangi–
ble asse t has a finite life, then it is presumed to have a reliably measurable fai r value.
5.8 In some circumstances, it may not be possible to reliably measure the fair value of an intangi–
ble asset in a business combination because it is inseparable or there is no history or evidence of
exchange transactions for the asset, and any fair value estimates would be based on immeasurable
variables.
5.9 If an intangible asset is acquired in exchange for another asset, then the acquired asset is
meas ured at its fair value unless the exchange lacks commercial substance or the fair value cannot
be reliably measured, in which case the acquired asset should be measured at the carry ing amount
of the asset given up, where carrying amount is equal to cos t less accumulated depreciation and
impairment losses. For impai rment losses, reference should be made to lAS 36. In this context, any
compensation recei ved for impairment or loss of an asset shall be included in the income statement.