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GDB No: 01

HRSS Engineering Limited - a multinational company working in Pakistan is principally engaged in providing engineering and operational support services to its Pakistani customers and various European countries as well. It works for projects related to Energy, manufacturing, construction and plant maintenance. Company is enjoying strong market reputation owing to its excellent quality services and prompts responses towards its customers.

Recently, HRSS has received an order from one of its client Melto Ltd. (engaged in power sector) to develop a newly designed Heat Recovery Steam Generator. Before going into its manufacturing, HRSS has to conduct a laboratory research and build a prototype for Melto. Upon the successful demo, its commercial production would be started to execute the order.

To finance this Research & Development activity, HRSS incurred a total budget of Rs. 1.0 million. Following costs were incurred by the company in pursuance of its research and development:

  • Rs 200,000 were paid to the researchers engaged in the research process. Whereas, administration cost incurred to supervise this phase was Rs. 100,000.
  • Material of Rs. 400,000 was purchased for developing the prototype.
  • First model was tested at a cost of Rs. 150,000 to ensure that it operates properly according to the customer’s demand. Meeting was called and expert engineers were invited for introduction of new product. Total cost incurred for this purpose was Rs. 75, 000.
  • A prototype was tested in the controlled environment to check customers’ acceptance for the design at a cost of Rs. 150,000. Sample was proved to be acceptable by customers.

 

Required:

1.   Determine research cost incurred on the project.                                                  (0.50)

2.   Determine development cost associated with the project.                                      (0.50)

3.   Which cost needs to be capitalized as per IAS 38?                                               (0.50)

4.   Give arguments in support of your answer in 3 above in the light of IAS 38.           (0.50)


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IAS-38
Objective
The objective of IAS 38 is to prescribe the accounting treatment for intangible assets that are not dealt with
specifically in another IFRS. The Standard requires an entity to recognise an intangible asset if, and only if, certain
criteria are met. The Standard also specifies how to measure the carrying amount of intangible assets and requires
certain disclosures regarding intangible assets. [IAS 38.1]
Scope
IAS 38 applies to all intangible assets other than: [IAS 38.2-3]
o financial assets
o exploration and evaluation assets (extractive industries)
o expenditure on the development and extraction of minerals, oil, natural gas, and similar resources
o intangible assets arising from insurance contracts issued by insurance companies
o intangible assets covered by another IFRS, such as intangibles held for sale, deferred tax assets, lease assets,
assets arising from employee benefits, and goodwill. Goodwill is covered by IFRS 3.
Key definitions
Intangible asset: an identifiable non-monetary asset without physical substance. An asset is a resource that is
controlled by the entity as a result of past events (for example, purchase or self-creation) and from which future
economic benefits (inflows of cash or other assets) are expected. [IAS 38.8] Thus, the three critical attributes of an
intangible asset are:
o identifiability
o control (power to obtain benefits from the asset)
o future economic benefits (such as revenues or reduced future costs)
Identifiability: an intangible asset is identifiable when it: [IAS 38.12]
o is separable (capable of being separated and sold, transferred, licensed, rented, or exchanged, either
individually or together with a related contract) or
o Arises from contractual or other legal rights, regardless of whether those rights are transferable or separable
from the entity or from other rights and obligations.
Examples of possible intangible assets include:
o computer software
o patents
o copyrightso motion picture films
o customer lists
o mortgage servicing rights
o licenses
o import quotas
o franchises
o customer and supplier relationships
o marketing rights
Intangibles can be acquired:
o by separate purchase
o as part of a business combination
o by a government grant
o by exchange of assets
o by self-creation (internal generation)
Recognition
Recognition criteria. IAS 38 requires an entity to recognise an intangible asset, whether purchased or self-created
(at cost) if, and only if: [IAS 38.21]
o it is probable that the future economic benefits that are attributable to the asset will flow to the entity; and
o The cost of the asset can be measured reliably.
This requirement applies whether an intangible asset is acquired externally or generated internally. IAS 38 includes
additional recognition criteria for internally generated intangible assets (see below).
The probability of future economic benefits must be based on reasonable and supportable assumptions about
conditions that will exist over the life of the asset. [IAS 38.22] The probability recognition criterion is always
considered to be satisfied for intangible assets that are acquired separately or in a business combination. [IAS 38.33]
If recognition criteria not met. If an intangible item does not meet both the definition of and the criteria for
recognition as an intangible asset, IAS 38 requires the expenditure on this item to be recognised as an expense when
it is incurred. [IAS 38.68]
Business combinations. There is a presumption that the fair value (and therefore the cost) of an intangible asset
acquired in a business combination can be measured reliably. [IAS 38.35] An expenditure (included in the cost of
acquisition) on an intangible item that does not meet both the definition of and recognition criteria for an intangible
asset should form part of the amount attributed to the goodwill recognised at the acquisition date.
Reinstatement. The Standard also prohibits an entity from subsequently reinstating as an intangible asset, at a later
date, an expenditure that was originally charged to expense. [IAS 38.71]
Initial recognition: research and development costs
o Charge all research cost to expense. [IAS 38.54]o Development costs are capitalized only after technical and commercial feasibility of the asset for sale or use
have been established. This means that the entity must intend and be able to complete the intangible asset and
either use it or sell it and be able to demonstrate how the asset will generate future economic benefits. [IAS
38.57]
If an entity cannot distinguish the research phase of an internal project to create an intangible asset from the
development phase, the entity treats the expenditure for that project as if it were incurred in the research phase only.
Initial recognition: in-process research and development acquired in a business combination
A research and development project acquired in a business combination is recognised as an asset at cost, even if a
component is research. Subsequent expenditure on that project is accounted for as any other research and
development cost (expensed except to the extent that the expenditure satisfies the criteria in IAS 38 for recognising
such expenditure as an intangible asset). [IAS 38.34]
Initial recognition: internally generated brands, mastheads, titles, lists
Brands, mastheads, publishing titles, customer lists and items similar in substance that are internally generated
should not be recognised as assets. [IAS 38.63]
Initial recognition: computer software
o Purchased: capitalise
o Operating system for hardware: include in hardware cost
o Internally developed (whether for use or sale): charge to expense until technological feasibility, probable future
benefits, intent and ability to use or sell the software, resources to complete the software, and ability to measure
cost.
o Amortisation: over useful life, based on pattern of benefits (straight-line is the default).
Initial recognition: certain other defined types of costs
The following items must be charged to expense when incurred:
o internally generated goodwill [IAS 38.48]
o start-up, pre-opening, and pre-operating costs [IAS 38.69]
o training cost [IAS 38.69]
o advertising and promotional cost, including mail order catalogues [IAS 38.69]
o relocation costs [IAS 38.69]
For this purpose, 'when incurred' means when the entity receives the related goods or services. If the entity has made
a prepayment for the above items, that prepayment is recognised as an asset until the entity receives the related
goods or services. [IAS 38.70]
Initial measurement
Intangible assets are initially measured at cost. [IAS 38.24]
Measurement subsequent to acquisition: cost model and revaluation models allowed
An entity must choose either the cost model or the revaluation model for each class of intangible asset. [IAS 38.72]
Cost model. After initial recognition the benchmark treatment is that intangible assets should be carried at cost less
any amortisation and impairment losses. [IAS 38.74]Revaluation model. Intangible assets may be carried at a revalued amount (based on fair value) less any
subsequent amortisation and impairment losses only if fair value can be determined by reference to an active market.
[IAS 38.75] Such active markets are expected to be uncommon for intangible assets. [IAS 38.78] Examples where
they might exist:
o production quotas
o fishing licences
o taxi licences
Under the revaluation model, revaluation increases are credited directly to "revaluation surplus" within equity except
to the extent that it reverses a revaluation decrease previously recognised in profit and loss. If the revalued intangible
has a finite life and is, therefore, being amortised (see below) the revalued amount is amortised. [IAS 38.85]
Classification of intangible assets based on useful life
Intangible assets are classified as: [IAS 38.88]
o Indefinite life: no foreseeable limit to the period over which the asset is expected to generate net cash inflows
for the entity.
o Finite life: a limited period of benefit to the entity.
Measurement subsequent to acquisition: intangible assets with finite lives
The cost less residual value of an intangible asset with a finite useful life should be amortised on a systematic basis
over that life: [IAS 38.97]
o The amortisation method should reflect the pattern of benefits.
o If the pattern cannot be determined reliably, amortise by the straight line method.
o The amortisation charge is recognised in profit or loss unless another IFRS requires that it be included in the
cost of another asset.
o The amortisation period should be reviewed at least annually. [IAS 38.104]
The asset should also be assessed for impairment in accordance with IAS 36. [IAS 38.111]
Measurement subsequent to acquisition: intangible assets with indefinite useful lives
An intangible asset with an indefinite useful life should not be amortised. [IAS 38.107]
Its useful life should be reviewed each reporting period to determine whether events and circumstances continue to
support an indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment
from indefinite to finite should be accounted for as a change in an accounting estimate. [IAS 38.109]
The asset should also be assessed for impairment in accordance with IAS 36. [IAS 38.111]
Subsequent expenditure
Subsequent expenditure on an intangible asset after its purchase or completion should be recognised as an expense
when it is incurred, unless it is probable that this expenditure will enable the asset to generate future economic
benefits in excess of its originally assessed standard of performance and the expenditure can be measured and
attributed to the asset reliably. [IAS 38.60]
Disclosure
For each class of intangible asset, disclose: [IAS 38.118 and 38.122]
o useful life or amortisation rate
o amortisation methodo gross carrying amount
o accumulated amortisation and impairment losses
o line items in the income statement in which amortisation is included
o reconciliation of the carrying amount at the beginning and the end of the period showing:
o additions (business combinations separately)
o assets held for sale
o retirements and other disposals
o revaluations
o impairments
o reversals of impairments
o amortisation
o foreign exchange differences
o other changes
o basis for determining that an intangible has an indefinite life
o description and carrying amount of individually material intangible assets
o certain special disclosures about intangible assets acquired by way of government grants
o information about intangible assets whose title is restricted
o contractual commitments to acquire intangible assets
Additional disclosures are required about:
o intangible assets carried at revalued amounts [IAS 38.124]
o the amount of research and development expenditure recognised as an expense in the current period [IAS
38.126]

2012
Technical Summary
IAS 38
as issued at 1 January 2012. Includes IFRSs with an effective date after 1 January 2012 but not the IFRSs they
will replace.
This extract has been prepared by IFRS Foundation staff and has not been approved by the IASB. For the requirements
reference must be made to International Financial Reporting Standards.
The objective of this Standard is to prescribe the accounting treatment for intangible assets that are not dealt
with specifically in another Standard. This Standard requires an entity to recognise an intangible asset if, and
only if, specified criteria are met. The Standard also specifies how to measure the carrying amount of
intangible assets and requires specified disclosures about intangible assets.
An intangible asset is an identifiable non-monetary asset without physical substance.
Recognition and measurement
The recognition of an item as an intangible asset requires an entity to demonstrate that the item meets:
(a) the definition of an intangible asset; and
(b) the recognition criteria.
This requirement applies to costs incurred initially to acquire or internally generate an intangible asset and
those incurred subsequently to add to, replace part of, or service it.
An asset is identifiable if it either:
(a) is separable, ie is capable of being separated or divided from the entity and sold, transferred, licensed,
rented or exchanged, either individually or together with a related contract, identifiable asset or liability,
regardless of whether the entity intends to do so; or
(b) arises from contractual or other legal rights, regardless of whether those rights are transferable or separable
from the entity or from other rights and obligations.
An intangible asset shall be recognised if, and only if:
(a) it is probable that the expected future economic benefits that are attributable to the asset will flow to the
entity; and
(b) the cost of the asset can be measured reliably. The probability recognition criterion is always considered to be satisfied for intangible assets that are acquired
separately or in a business combination.
An intangible asset shall be measured initially at cost.
The cost of a separately acquired intangible asset comprises:
(a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade
discounts and rebates; and
(b) any directly attributable cost of preparing the asset for its intended use.
In accordance with IFRS 3 Business Combinations, if an intangible asset is acquired in a business combination,
the cost of that intangible asset is its fair value at the acquisition date. If an asset acquired in a business
combination is separable or arises from contractual or other legal rights, sufficient information exists to
measure reliably the fair value of the asset.
In accordance with this Standard and IFRS 3 (as revised in 2008), an acquirer recognises at the acquisition
date, separately from goodwill, an intangible asset of the acquiree, irrespective of whether the asset had been
recognised by the acquiree before the business combination. This means that the acquirer recognises as an
asset separately from goodwill an in-process research and development project of the acquiree if the project
meets the definition of an intangible asset.
Internally generated intangible assets
Internally generated goodwill shall not be recognised as an asset.
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.
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.
Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall not
be recognised as intangible assets. 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.
Expenditure on an intangible item shall be recognised as an expense when it is incurred unless:
(a) it forms part of the cost of an intangible asset that meets the recognition criteria; or
(b) the item is acquired in a business combination and cannot be recognised as an intangible asset. If this is the
case, it forms part of the amount recognised as goodwill at the acquisition date (see IFRS 3).
Measurement after recognition
An entity shall choose either the cost model or the revaluation model as its accounting policy. If an intangible
asset is accounted for using the revaluation model, all the other assets in its class shall also be accounted for
using the same model, unless there is no active market for those assets.
Cost model: After initial recognition, an intangible asset shall be carried at its cost less any accumulated
amortisation and any accumulated impairment losses.
Revaluation model: After initial recognition, an intangible asset shall be carried at a revalued amount, being its
fair value at the date of the revaluation less any subsequent accumulated amortisation and any subsequent
accumulated impairment losses. For the purpose of revaluations under this Standard, fair value shall be
measured by reference to an active market. Revaluations shall be made with such regularity that at the end of
the reporting period the carrying amount of the asset does not differ materially from its fair value.
An active market is a market in which all the following conditions exist:
(a) the items traded in the market are homogeneous;
(b) willing buyers and sellers can normally be found at any time; and
(c) prices are available to the public.
If an intangible asset’s carrying amount is increased as a result of a revaluation, the increase shall be
recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus.
However, the increase shall be recognised in profit or loss to the extent that it reverses a revaluation decrease
of the same asset previously recognised in profit or loss. If an intangible asset’s carrying amount is decreased
as a result of a revaluation, the decrease shall be recognised in profit or loss. However, the decrease shall be
recognised in other comprehensive income to the extent of any credit balance in the revaluation surplus in
respect of that asset.
Useful life
Useful life is:
(a) the period over which an asset is expected to be available for use by an entity; or
(b) the number of production or similar units expected to be obtained from the asset by an entity. An entity shall assess whether the useful life of an intangible asset is finite or indefinite and, if finite, the length
of, or number of production or similar units constituting, that useful life. An intangible asset shall be regarded
by the entity as having an indefinite useful life when, based on an analysis of all of the relevant factors, there is
no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.
The useful life of an intangible asset that arises from contractual or other legal rights shall not exceed the
period of the contractual or other legal rights, but may be shorter depending on the period over which the entity
expects to use the asset. If the contractual or other legal rights are conveyed for a limited term that can be
renewed, the useful life of the intangible asset shall include the renewal period(s) only if there is evidence to
support renewal by the entity without significant cost.
To determine whether an intangible asset is impaired, an entity applies IAS 36 Impairment of Assets.
Intangible assets with finite useful lives
The depreciable amount of an intangible asset with a finite useful life shall be allocated on a systematic basis
over its useful life. Depreciable amount is the cost of an asset, or other amount substituted for cost, less its
residual value. Amortisation shall begin when the asset is available for use, ie when it is in the location and
condition necessary for it to be capable of operating in the manner intended by management. Amortisation
shall cease at the earlier of the date that the asset is classified as held for sale (or included in a disposal group
that is classified as held for sale) in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations and the date that the asset is derecognised. The amortisation method used shall
reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity.
If that pattern cannot be determined reliably, the straight-line method shall be used. The amortisation charge
for each period shall be recognised in profit or loss unless this or another Standard permits or requires it to be
included in the carrying amount of another asset.
The residual value of an intangible asset is the estimated amount that an entity would currently obtain from
disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in
the condition expected at the end of its useful life. The residual value of an intangible asset with a finite useful
life shall be assumed to be zero unless:
(a) there is a commitment by a third party to purchase the asset at the end of its useful life; or
(b) there is an active market for the asset and:
(i) residual value can be determined by reference to that market; and
(ii) it is probable that such a market will exist at the end of the asset’s useful life.
The amortisation period and the amortisation method for an intangible asset with a finite useful life shall be
reviewed at least at each financial year-end. If the expected useful life of the asset is different from previous
estimates, the amortisation period shall be changed accordingly. If there has been a change in the expected
pattern of consumption of the future economic benefits embodied in the asset, the amortisation method shall be
changed to reflect the changed pattern. Such changes shall be accounted for as changes in accounting estimates
in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Intangible assets with indefinite useful lives
An intangible asset with an indefinite useful life shall not be amortised.
In accordance with IAS 36 Impairment of Assets, an entity is required to test an intangible asset with an
indefinite useful life for impairment by comparing its recoverable amount with its carrying amount
(a) annually, and
(b) whenever there is an indication that the intangible asset may be impaired.
The useful life of an intangible asset that is not being amortised shall be reviewed each period to determine
whether events and circumstances continue to support an indefinite useful life assessment for that asset. If they
do not, the change in the useful life assessment from indefinite to finite shall be accounted for as a change in an
accounting estimate in accordance with IAS 8.

Yr IAS paste krne k bejahai koi argument se baat kareeen, ta k koch pata bhee chalay , atni lambi lambi pasting se avoid he kareen , I think .

agha bhai u r right...

First we should understand IAS then we can solve this. How much we can clear our concepts, we must go ahead.

yes

Please Discuss here about this GDB.Thanks

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IAS 38
as issued at 1 January 2012. Includes IFRSs with an effective date after 1 January 2012 but not the IFRSs they 
will replace. 
This extract has been prepared by IFRS Foundation staff and has not been approved by the IASB. For the requirements 
reference must be made to International Financial Reporting Standards.
The objective of this Standard is to prescribe the accounting treatment for intangible assets that are not dealt 
with specifically in another Standard. This Standard requires an entity to recognise an intangible asset if, and 
only if, specified criteria are met. The Standard also specifies how to measure the carrying amount of
intangible assets and requires specified disclosures about intangible assets. 
An intangible asset is an identifiable non-monetary asset without physical substance. 
Recognition and measurement
The recognition of an item as an intangible asset requires an entity to demonstrate that the item meets: 
(a) the definition of an intangible asset; and 
(b) the recognition criteria. 
This requirement applies to costs incurred initially to acquire or internally generate an intangible asset and 
those incurred subsequently to add to, replace part of, or service it. 
An asset is identifiable if it either: 
(a) is separable, ie is capable of being separated or divided from the entity and sold, transferred, licensed, 
rented or exchanged, either individually or together with a related contract, identifiable asset or liability, 
regardless of whether the entity intends to do so; or 
(b) arises from contractual or other legal rights, regardless of whether those rights are transferable or separable 
from the entity or from other rights and obligations. 
An intangible asset shall be recognised if, and only if: 
(a) it is probable that the expected future economic benefits that are attributable to the asset will flow to the 
entity; and 
(b) the cost of the asset can be measured reliably. The probability recognition criterion is always considered to be satisfied for intangible assets that are acquired 
separately or in a business combination. 
An intangible asset shall be measured initially at cost. 
The cost of a separately acquired intangible asset comprises: 
(a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade 
discounts and rebates; and 
(b) any directly attributable cost of preparing the asset for its intended use. 
In accordance with IFRS 3 Business Combinations, if an intangible asset is acquired in a business combination, 
the cost of that intangible asset is its fair value at the acquisition date. If an asset acquired in a business 
combination is separable or arises from contractual or other legal rights, sufficient information exists to 
measure reliably the fair value of the asset. 
In accordance with this Standard and IFRS 3 (as revised in 2008), an acquirer recognises at the acquisition 
date, separately from goodwill, an intangible asset of the acquiree, irrespective of whether the asset had been 
recognised by the acquiree before the business combination. This means that the acquirer recognises as an 
asset separately from goodwill an in-process research and development project of the acquiree if the project 
meets the definition of an intangible asset. 
Internally generated intangible assets
Internally generated goodwill shall not be recognised as an asset. 
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. 
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. 
Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall not 
be recognised as intangible assets. 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. 
Expenditure on an intangible item shall be recognised as an expense when it is incurred unless: 
(a) it forms part of the cost of an intangible asset that meets the recognition criteria; or 
(b) the item is acquired in a business combination and cannot be recognised as an intangible asset. If this is the 
case, it forms part of the amount recognised as goodwill at the acquisition date (see IFRS 3). 
Measurement after recognition 
An entity shall choose either the cost model or the revaluation model as its accounting policy. If an intangible 
asset is accounted for using the revaluation model, all the other assets in its class shall also be accounted for 
using the same model, unless there is no active market for those assets. 
Cost model: After initial recognition, an intangible asset shall be carried at its cost less any accumulated 
amortisation and any accumulated impairment losses.
Revaluation model: After initial recognition, an intangible asset shall be carried at a revalued amount, being its 
fair value at the date of the revaluation less any subsequent accumulated amortisation and any subsequent 
accumulated impairment losses. For the purpose of revaluations under this Standard, fair value shall be 
measured by reference to an active market. Revaluations shall be made with such regularity that at the end of 
the reporting period the carrying amount of the asset does not differ materially from its fair value. 
An active market is a market in which all the following conditions exist: 
(a) the items traded in the market are homogeneous; 
(b) willing buyers and sellers can normally be found at any time; and 
(c) prices are available to the public. 
If an intangible asset’s carrying amount is increased as a result of a revaluation, the increase shall be 
recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus. 
However, the increase shall be recognised in profit or loss to the extent that it reverses a revaluation decrease 
of the same asset previously recognised in profit or loss. If an intangible asset’s carrying amount is decreased 
as a result of a revaluation, the decrease shall be recognised in profit or loss. However, the decrease shall be 
recognised in other comprehensive income to the extent of any credit balance in the revaluation surplus in 
respect of that asset. 
Useful life 
Useful life is: 
(a) the period over which an asset is expected to be available for use by an entity; or 
(b) the number of production or similar units expected to be obtained from the asset by an entity. An entity shall assess whether the useful life of an intangible asset is finite or indefinite and, if finite, the length 
of, or number of production or similar units constituting, that useful life. An intangible asset shall be regarded 
by the entity as having an indefinite useful life when, based on an analysis of all of the relevant factors, there is 
no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity. 
The useful life of an intangible asset that arises from contractual or other legal rights shall not exceed the 
period of the contractual or other legal rights, but may be shorter depending on the period over which the entity 
expects to use the asset. If the contractual or other legal rights are conveyed for a limited term that can be 
renewed, the useful life of the intangible asset shall include the renewal period(s) only if there is evidence to 
support renewal by the entity without significant cost. 
To determine whether an intangible asset is impaired, an entity applies IAS 36 Impairment of Assets. 
Intangible assets with finite useful lives
The depreciable amount of an intangible asset with a finite useful life shall be allocated on a systematic basis 
over its useful life. Depreciable amount is the cost of an asset, or other amount substituted for cost, less its 
residual value. Amortisation shall begin when the asset is available for use, ie when it is in the location and 
condition necessary for it to be capable of operating in the manner intended by management. Amortisation 
shall cease at the earlier of the date that the asset is classified as held for sale (or included in a disposal group 
that is classified as held for sale) in accordance with IFRS 5 Non-current Assets Held for Sale and 
Discontinued Operations and the date that the asset is derecognised. The amortisation method used shall 
reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity. 
If that pattern cannot be determined reliably, the straight-line method shall be used. The amortisation charge 
for each period shall be recognised in profit or loss unless this or another Standard permits or requires it to be 
included in the carrying amount of another asset. 
The residual value of an intangible asset is the estimated amount that an entity would currently obtain from 
disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in 
the condition expected at the end of its useful life. The residual value of an intangible asset with a finite useful 
life shall be assumed to be zero unless: 
(a) there is a commitment by a third party to purchase the asset at the end of its useful life; or 
(b) there is an active market for the asset and: 
(i) residual value can be determined by reference to that market; and 
(ii) it is probable that such a market will exist at the end of the asset’s useful life. 
The amortisation period and the amortisation method for an intangible asset with a finite useful life shall be 
reviewed at least at each financial year-end. If the expected useful life of the asset is different from previous 
estimates, the amortisation period shall be changed accordingly. If there has been a change in the expected 
pattern of consumption of the future economic benefits embodied in the asset, the amortisation method shall be 
changed to reflect the changed pattern. Such changes shall be accounted for as changes in accounting estimates 
in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Intangible assets with indefinite useful lives
An intangible asset with an indefinite useful life shall not be amortised. 
In accordance with IAS 36 Impairment of Assets, an entity is required to test an intangible asset with an 
indefinite useful life for impairment by comparing its recoverable amount with its carrying amount 
(a) annually, and 
(b) whenever there is an indication that the intangible asset may be impaired. 
The useful life of an intangible asset that is not being amortised shall be reviewed each period to determine 
whether events and circumstances continue to support an indefinite useful life assessment for that asset. If they 
do not, the change in the useful life assessment from indefinite to finite shall be accounted for as a change in an 
accounting estimate in accordance with IAS 8

aslam o alikum sir ap ny ye sb itna zyada kun send kea ha kuch theek sy samjh nain aya

Q k hamari book meen IAS 38 deeply nahi deya howa, 1.5 page ka hai bus, shaid es leya koch deya atna Lamba, but faida koi nahi es ka bhee

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