Ho3 Items of Ppe Used in RD Activities

INTANGIBLE ASSETS HANDOUT 3:
ITEMS OF PPE USED IN R&D ACTIVITIES
The cost of a PPE acquired and used in R&D activities is included in R&D expense as follows:
a. If the item of PPE has an alternative use, meaning it can be used in various R&D activities or
other purposes, the cost of the PPE is ________________________________. The amount of
depreciation is included as ________________.
b. If the item of PPE has no alternative use, meaning it can only be used on one specific R&D
project, the cost of the PPE is ________________________________.
Illustration 4: Research and development expense - with PPE

ABC Co. made expenditures for the following:
• Cost of purchased building to be used in various R&D projects 100,000
• Depreciation on the building described above 8,000
• Cost of machine acquired to be used on only one R&D project 200,000
• Modification to the formulation of a chemical product 15,000
• Laboratory research aimed at discovery of new technology 12,000
Requirement: How much is recognized as research and development expense?
Items not recognized as intangible assets

Internally generated brands, mastheads, publishing titles, customer lists and similar items are
________________ as intangible assets.
Similarly, an internally generated goodwill is ________________ as an asset. The costs to develop
these items, including subsequent expenditures on them, are expensed.
Illustration:
ABC Co. has made expenditures for the following:
• Internally generated brand 10,000
• Self-created masthead and publishing title 5,000
• Internally created customer list and order backlog 3,000
• Purchased goodwill from a business combination 40,000
• Expenditure incurred to improve the acquired goodwill 15,000
• Internally generated goodwill 20,000
• Purchased brands, mastheads, publishing titles, customer lists, and order and production backlogs
100,000
• Expenditures incurred to improve purchased brands, mastheads, publishing titles, customer lists,
and order and production backlogs 30,000
Requirement: How much of the expenditures incurred may qualify as intangible assets to be
accounted for under PAS 38?
INTANGIBLE ASSETS HO#3 1

AMORTIZATION OF INTANGIBLE ASSETS
An entity shall assess whether the intangible asset has:
a. Finite useful life; or
b. Indefinite useful life
This is because only intangible assets with finite useful life are amortized. Intangible assets with
indefinite useful life are not amortized but tested for impairment at least annually using PAS 36.
An intangible asset has ________________ if the entity can determine reliably the length of, or
number of production or similar units constituting, the intangible asset's useful life.
An intangible asset has an ________________ if there is no foreseeable limit to the period over
which the asset is expected to provide future economic benefits.
An intangible asset's useful life is ________________ if there are no legal, contractual, competitive
and other restrictions that would limit the period over which the asset is used.
An intangible asset that has a legal life that can be renewed for an indefinite number of renewals
without restriction and only for an insignificant cost is also considered an intangible asset with
________________ useful life.
Amortization
Amortization is "the systematic allocation of the depreciate amount of an intangible asset over its
useful life."
Some intangible assets have legal life while some do not.
For example, patents have a legal life of ________________. Therefore, a patent is amortized over
the shorter of its useful life and 20 years.
Intangible assets with no legal life, e.g., computer software, are amortized over their ____________.
Amortization ________ when the asset is available for use, in the manner intended by management.
Amortization ________ when the asset is derecognized (i.e, sold or disposed of), classified as held
for sale under PFRS 5, or becomes fully amortized.
Amortization ________________ when the asset is no longer used, unless one of the conditions
above are met.
Amortization is recognized as ________________ unless it is included in the cost of producing

another asset.
Separate classes of intangible assets

A class of intangible assets is "a grouping of assets of a similar nature and use in an entity's
operations." (PAS 38.119) Examples of separate classes of intangible assets:
a. Brand names;
b. Mastheads and publishing titles;
c. Computer software;
d. Licenses and franchises;
e. Copyrights, patents and other industrial property rights, service and operating rights;
f. Recipes, formulae, models, designs and prototypes; and
g. Intangible assets under development.
INTANGIBLE ASSETS HO#3 2

Ho3 Items of Ppe Used in RD Activities

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INTANGIBLE ASSETS HANDOUT 3:

ITEMS OF PPE USED IN R&D ACTIVITIES

Illustration 4: Research and development expense - with PPE

Items not recognized as intangible assets

INTANGIBLE ASSETS HO#3 1

Amortization is recognized as ________________ unless it is included in the cost of producing

Separate classes of intangible assets

INTANGIBLE ASSETS HO#3 2

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