Internally Generated Intangible Assets

To assess whether an internally generated intangible asset meets the criteria for recognition, an enterprise classifies the generation of the asset into Research Phase & Development Phase. If an enterprise cannot distinguish the research phase from the development phase of an internal project to create an intangible asset, the enterprise treats the expenditure on that project as if it were incurred in the research phase only.

Internally generated goodwill is not recognised as an asset because it is not an identifiable

resource controlled by the enterprise that can be measured reliably at cost.

Research Phase

Research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding. No intangible asset arising from research or from the research phase should be recognised. Expenditure on research or on the research phase should be recognised as an expense when it is incurred.

Examples of research activities are:

  • Activities aimed at obtaining new knowledge.
  • The search for, evaluation and final selection of, applications of research findings or other knowledge.
  • The search for alternatives for materials, devices, products, processes, systems or services;
  • The formulation, design, evaluation and final selection of possible alternatives for new or improved materials, devices, products, processes, systems or services.

Development Phase

Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services prior to the commencement of commercial production or use.

An intangible asset arising from development or from the development phase should be recognised if, and only if, an enterprise can demonstrate all of the following:

  • The technical feasibility of completing the intangible asset so that it will be available for use or sale.
  • Its intention to complete the intangible asset and use or sell it. Its ability to use or sell the intangible asset.
  • How the intangible asset will generate probable future economic benefits.
  • Among other things, the enterprise should demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.
  • The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset and
  • Its ability to measure the expenditure attributable to the intangible asset during its development reliably.

Examples of development activities are:

  • The design, construction and testing of pre-production or pre-use prototypes and models. The design of tools, jigs, moulds and dies involving new technology.
  • The design, construction and operation of a pilot plant that is not of a scale economically feasible for commercial production and
  • The design, construction and testing of a chosen alternative for new or improved materials, devices, products, processes, systems or services.

An enterprise assesses the future economic benefits to be received from the asset using the principles in Accounting Standard on Impairment of Assets.

An enterprise’s costing systems can often measure reliably the cost of generating an intangible asset internally, such as salary and other expenditure incurred in securing copyrights or licenses or developing computer software.

This Statement takes the view that expenditure on internally generated brands, mastheads, publishing titles, customer lists and items similar in substance cannot be distinguished from the cost of developing the business as a whole. Therefore, such items are not recognised as intangible assets.

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