22420 Chap.5 Intangible Assets, Goodwill and Cash-Generating Units
Intangible Assets, Goodwill and Cash-Generating Units
Recognising intangibles
An intangible asset under AASB 138 is identifiable, non-monetary and without physical substance. Purchased items are recognised at cost; internally, research is always expensed and development is capitalised only from the date all six paragraph 57 criteria are met.
Internally generated brands, mastheads and customer lists are never recognised.
Lives, goodwill and impairment
Useful lives are finite or indefinite. Goodwill acquired in a business combination is recognised under AASB 3 but is not an intangible asset.
Where assets cannot generate cash alone, impairment is tested on a cash-generating unit and the loss is spread across its assets.
Acquired in a business combination
Research and development acquired as part of a business combination faces no separate recognition test: provided it satisfies the asset definition it is recognised on its own, measured at fair value at the acquisition date.
Later spending on it follows the usual research and development rules.
What this chapter covers
- 01
Identifiable, non-monetary, without physical substance
- 02
Initial measurement at cost or acquisition-date fair value
- 03
Research expensed; development and the six criteria
- 04
Internally generated brands and customer lists excluded
- 05
Finite and indefinite useful lives
- 06
Goodwill under AASB 3
- 07
Allocating an impairment loss across a cash-generating unit
- 08
Reversals and the ban on reversing goodwill impairment
Worked example · free
Spreading an impairment loss across a cash-generating unit
- 1The loss is $940,000 − $820,000 = $120,000, allocated to plant, building and licence, which total $800,000.
- 1Pro rata: plant $60,000, building $45,000, licence $15,000.
- 1The building cannot go below $270,000, so its loss is capped at $30,000 and $15,000 must be reallocated.
- 1On new amounts of plant $340,000 and licence $85,000, plant takes $12,000 and the licence $3,000.
Key terms
- Intangible asset
- An asset that can be identified, is not monetary and has no physical form.
- Development phase
- The stage of an internal project whose costs may be capitalised, but only from the date all six paragraph 57 criteria are met.
- Cash-generating unit
- A group of assets tested for impairment together because they generate cash only in combination.
- Goodwill
- An asset recognised in a business combination under AASB 3 that cannot be separated from the business.
Intangible Assets, Goodwill and Cash-Generating Units FAQ
Can development costs already expensed be capitalised later?
No. Development is capitalised only from the date all the paragraph 57 criteria are first met, and amounts expensed before that date are never reinstated as an asset.
Is goodwill an intangible asset?
Acquired goodwill is recognised as an asset under AASB 3, but it is not an intangible asset because it cannot be separated from the business. Internally generated goodwill is never recognised.
Can a goodwill impairment be reversed?
No. AASB 136 prohibits reversing an impairment loss on goodwill, because any later recovery in value would be internally generated goodwill, which can never be recognised as an asset.
How is software accounted for depending on how it is obtained?
Purchased packages and software built by contractors are capitalised at cost. Software written by the entity’s own programmers is expensed until the development criteria are met, and software bought for a project still in research is expensed unless it has another use.
What factors determine an intangible’s useful life?
Paragraph 90 lists expected usage, typical product life cycles, obsolescence, industry stability and demand, competitors’ actions, the maintenance spending required, legal or similar limits on use, and whether the life depends on other assets. A finite life is amortised; an indefinite life is tested for impairment instead.
Exam move
Memorise the six development criteria as a checklist and practise sorting mixed lists of outlays into expense or asset. Then rehearse one cash-generating unit allocation from start to finish, including a floor that forces a second pass, and write the final journal entry with the right accumulated account for each asset. Close by explaining in two sentences why a goodwill impairment can never be reversed.
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