Chapter 9 Intangible assets F3 financial accounting ACCA

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The video explains intangible assets in Acca F3, including recognition criteria and the distinction between tangible and intangible assets. It emphasizes the importance of capitalizing development costs and amortization for intangible assets, with detailed examples provided for clarity.

Insights

  • Intangible assets, such as patents and goodwill, are non-physical assets controlled by an entity for future economic benefits, with recognition criteria outlined by IAS 38 to ensure reliable measurement and economic value.
  • Development costs for intangible assets, distinguished from research, are capitalized if they meet specific criteria, with amortization reflecting the wearing out of assets like patents or trademarks, emphasizing the importance of proper accounting treatment for future economic benefits and accurate financial reporting.

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Recent questions

  • What are intangible assets?

    Intangible assets are assets that cannot be touched or felt, such as patents, copyrights, and goodwill, unlike tangible assets like machinery or stock.

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Summary

00:00

Understanding Intangible Assets in Accounting

  • The video covers Chapter 9 of Acca F3, focusing on intangible assets, with links to previous videos and exam kit solutions provided in the description.
  • Viewers are advised to have paper, pen, and calculator to solve questions along with the video to enhance understanding.
  • Intangible assets are assets that cannot be touched or felt, such as patents, copyrights, and goodwill, unlike tangible assets like machinery or stock.
  • IAS 38 defines intangible assets as identifiable non-monetary assets without physical substance, controlled by the entity for future economic benefits.
  • Recognition criteria for intangible assets include meeting the definition and recognition criteria of IAS 38, ensuring reliable measurement and future economic benefits.
  • Development costs for internally generated intangible assets are capitalized, distinguishing between research (studying) and development (creating new products).
  • Tangible non-current assets have physical substance like land or machinery, with costs capitalized and depreciation reflecting wear and tear.
  • Intangible non-current assets lack physical substance, can be internally generated, and may not be capitalized if internally created.
  • Amortization reflects the wearing out of capitalized intangible assets like patents or trademarks, with examples including goodwill and franchises.
  • A practical example involves calculating amortization for a purchased patent with a useful life of 10 years, showing amortization expense in the income statement and adjusted asset value in the balance sheet.

19:03

Research, Development, and Accounting Treatment for Costs

  • Research is defined as an original and planned investigation for gaining new scientific or technical knowledge.
  • Development is the application of research findings to create new or improved products or services.
  • Accounting treatment for research and development costs is crucial for future economic benefits.
  • Research costs are expensed in the profit and loss statement as expenditures.
  • Assets purchased for research purposes are capitalized, while research costs are expensed.
  • Development costs should be capitalized if they meet specific criteria, known as the "PIRATE" criteria.
  • If development costs do not meet the criteria, they should be expensed in the profit and loss statement.
  • Capitalized development costs must be amortized over their expected benefit period.
  • Intangible assets resulting from development costs should be reviewed annually to ensure they still meet the criteria.
  • Amortization for intangible assets is calculated as cost minus residual value divided by useful life, similar to depreciation.

38:53

Measuring Intangible Assets According to IAS 38

  • Intangible assets should be initially measured at cost, with the carrying value calculated as cost minus accumulated depreciation. Fair value should also be measured according to IAS 38 disclosure requirements. The balance sheet includes costs, additions, removals, accumulated depreciation, and charges. Research costs are shown in the statement of PNL and written off as expenditure, while development costs are capitalized if they meet specific criteria, leading to annual amortization divided by useful years.
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