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Commission Regulation
(EC) No 2236/2004 of 29 December 2004 amending
Regulation (EC) No 1725/2003 adopting certain
international accounting standards in accordance with
Regulation (EC) No 1606/2002 of the European Parliament
and of the Council as regards International Financial
Reporting Standards (IFRSs) Nos 1, 3 to 5, International
Accounting Standards (IASs) Nos 1, 10, 12, 14, 16 to 19,
22, 27, 28, 31 to 41 and the interpretations by the
Standard Interpretation Committee (SIC) Nos 9, 22, 28
and 32
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Research phase
54. No
intangible asset arising from research (or from the research
phase of an internal project) shall be recognised.
Expenditure on research (or on the research phase of an
internal project) shall be recognised as an expense when it
is incurred.
55. In the
research phase of an internal project, an entity cannot
demonstrate that an intangible asset exists that will
generate probable future economic benefits. Therefore, this
expenditure is recognised as an expense when it is incurred.
56. Examples of
research activities are:
(a) activities
aimed at obtaining new knowledge;
(b) the search
for, evaluation and final selection of, applications of
research findings or other knowledge;
(c) the search
for alternatives for materials, devices, products,
processes, systems or services; and
(d) the
formulation, design, evaluation and final selection of
possible alternatives for new or improved materials,
devices, products, processes, systems or services.
Development
phase
57. An
intangible asset arising from development (or from the
development phase of an internal project) shall be
recognised if, and only if, an entity can demonstrate all of
the following:
(a) the
technical feasibility of completing the intangible asset
so that it will be available for use or sale.
(b) its
intention to complete the intangible asset and use or
sell it.
(c) its
ability to use or sell the intangible asset.
(d) how
the intangible asset will generate probable future
economic benefits. Among other things, the entity can
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.
(e) the
availability of adequate technical, financial and other
resources to complete the development and to use or sell
the intangible asset.
(f) its
ability to measure reliably the expenditure attributable
to the intangible asset during its development.
58. In the
development phase of an internal project, an entity can, in
some instances, identify an intangible asset and demonstrate
that the asset will generate probable future economic
benefits. This is because the development phase of a project
is further advanced than the research phase.
59. Examples of
development activities are:
(a) the design,
construction and testing of pre-production or pre-use
prototypes and models;
(b) the design
of tools, jigs, moulds and dies involving new
technology;
(c) the design,
construction and operation of a pilot plant that is not
of a scale economically feasible for commercial
production; and
(d) the design,
construction and testing of a chosen alternative for new
or improved materials, devices, products, processes,
systems or services.
60. To demonstrate
how an intangible asset will generate probable future
economic benefits, an entity assesses the future economic
benefits to be received from the asset using the principles
in IAS 36 Impairment of Assets. If the asset will
generate economic benefits only in combination with other
assets, the entity applies the concept of cash-generating
units in IAS 36.
61. Availability
of resources to complete, use and obtain the benefits from
an intangible asset can be demonstrated by, for example, a
business plan showing the technical, financial and other
resources needed and the entity’s ability to secure those
resources. In some cases, an entity demonstrates the
availability of external finance by obtaining a lender’s
indication of its willingness to fund the plan.
62. An entity’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
licences or developing computer software.
63.
Internally generated brands, mastheads, publishing titles,
customer lists and items similar in substance shall not be
recognised as intangible assets.
64. 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.
Cost of an internally
generated intangible asset
65. The cost of an
internally generated intangible asset for the purpose of
paragraph 24 is the sum of expenditure incurred from the
date when the intangible asset first meets the recognition
criteria in paragraphs 21, 22 and 57. Paragraph 71 prohibits
reinstatement of expenditure previously recognised as an
expense.
66. The cost of an
internally generated intangible asset comprises all directly
attributable costs necessary to create, produce, and prepare
the asset to be capable of operating in the manner intended
by management. Examples of directly attributable costs are:
(a) costs of
materials and services used or consumed in generating
the intangible asset;
(b) costs of
employee benefits (as defined in IAS 19 Employee
Benefits) arising from the generation of the
intangible asset;
(c) fees to
register a legal right; and
(d)
amortisation of patents and licences that are used to
generate the intangible asset.
IAS 23
Borrowing Costs specifies criteria for the recognition
of interest as an element of the cost of an internally
generated intangible asset.
67. The following
are not components of the cost of an internally generated
intangible asset:
(a) selling,
administrative and other general overhead expenditure unless
this expenditure can be directly attributed to preparing the
asset for use;
(b) identified
inefficiencies and initial operating losses incurred before
the asset achieves planned performance; and
(c) expenditure on
training staff to operate the asset.
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Example
illustrating paragraph 65
An entity is
developing a new production process. During 20X5,
expenditure incurred was CU1 000 (*), of which CU900 was
incurred before 1 December 20X5 and CU100 was incurred
between 1 December 20X5 and 31 December 20X5. The entity
is able to demonstrate that, at 1 December 20X5, the
production process met the criteria for recognition as
an intangible asset. The recoverable amount of the
know-how embodied in the process (including future cash
outflows to complete the process before it is available
for use) is estimated to be CU500.
At the end of
20X5, the production process is recognised as an
intangible asset at a cost of CU100 (expenditure
incurred since the date when the recognition criteria
were met, ie 1 December 20X5). The CU900 expenditure
incurred before 1 December 20X5 is recognised as an
expense because the recognition criteria were not met
until 1 December 20X5. This expenditure does not form
part of the cost of the production process recognised in
the balance sheet.
During 20X6,
expenditure incurred is CU2 000. At the end of 20X6, the
recoverable amount of the know-how embodied in the
process (including future cash outflows to complete the
process before it is available for use) is estimated to
be CU1 900.
At the end
of 20X6, the cost of the production process is CU2 100
(CU100 expenditure recognised at the end of 20X5 plus
CU2 000 expenditure recognised in 20X6). The entity
recognises an impairment loss of CU200 to adjust the
carrying amount of the process before impairment loss
(CU2 100) to its recoverable amount (CU1 900). This
impairment loss will be reversed in a subsequent period
if the requirements for the reversal of an impairment
loss in IAS 36 are met. |
(*) In this
Standard, monetary amounts are denominated in ‘currency
units’ (CU).
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