Intangible Assets - Procedures

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1. Purpose and Objectives

The purpose of these procedures is to define the types of assets that fall within the category of “Intangible” and provide guidance on the treatment of intangible assets.

2. Definitions, Terms, Acronyms

Intangible Asset - an asset that:

  • is identifiable:

o is separable, i.e. capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged either individually or together with a related contract, asset or liability, 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.

  • does not have tangible, physical substance, and
  • the beneficial ownership of which entitles the owner to future economic benefits.

Examples of intangible assets include:

  • Intellectual property (including but not limited to theses, patents, trademarks, copyrights)
  • Intellectual property work in progress (being developed but not yet patented or copyrighted)
  • Licences
  • Software purchased (predominantly purchased from external providers and used in the form it was purchased without material changes programmed by the University)
  • Software internally generated (predominantly developed within the University)
  • Software work in progress (being developed but not yet available for use)
  • Digital library reference collection
  • Digital library heritage collection.

Internally generated goodwill, brands, mastheads, publishing titles, customer lists and items similar in substance must not be recognised as intangible assets.

3. Procedures Scope/Coverage

These procedures apply to all University staff.

4. Procedures Statement

These procedures are guided by provisions outlined in AASB 138 Intangible Assets and the Non-Current Asset Policies for the Queensland Public Sector.

Other related information - AASB 119 Employee Benefits and AASB 136 Impairment of Assets.

5. Recognition

An intangible asset is recognised when it is probable that future economic benefits will eventuate from the asset and its cost or value can be reliably measured.

5.1 Accounting treatment

Intangible assets are capitalised at a corporate level and recorded on the balance sheet of the University. Where there is an active and liquid market, intangible assets are to be carried at fair value; otherwise, they must be carried at cost.

Capitalised development expenditure and the digital library reference collection is stated at cost less accumulated amortisation. Theses are recorded at the cost of reproduction less accumulated amortisation. The digital library heritage collection is stated at cost.

Any expenses relating to the acquisition/creation of intangible assets remain with the organisational unit who purchased/created the asset.

5.2 Identification and control

Corporate Finance within FBS maintains a register of all intangible assets.

When an intangible asset comes into existence or is in the process of being developed, the Head of the organisational unit must notify the Associate Director, Corporate Finance, of the existence and nature of each intangible asset.

Control of these assets remains with the organisational unit who purchased/created the asset.

5.3 Thresholds

The threshold for intangible assets, other than the digital library collections, is $100,000. Therefore, all assets that meet the definition of intangible assets that are greater than $100,000 must be recorded on the intangible asset register.

The digital library reference and heritage collections are subject to an asset recognition threshold of $1.

GST is not included in the cost of intangible assets.

Development expenditure is capitalised only when technical feasibility studies identify that the project will deliver future economic benefits and these benefits can be measured reliably.

Generally, the following costs should be capitalised:

  • The purchase price (including import duties and non-refundable purchase taxes after deducting for trade discounts and rebates)
  • Costs of materials and services used or consumed in generating the intangible asset
  • Costs incurred in testing a system in pre-production
  • System configuration
  • Costs of employee benefits (as defined in AASB 119 Employee Benefits) arising from the generation of the intangible asset
  • Fees to register a legal right.

Costs to be expensed in the period in which they are incurred:

  • Training and maintenance fees
  • Software user licences
  • Costs incurred in documenting policies and guidelines
  • Activities performed during the research stage
  • Administration costs.

The reinstatement and capitalisation of costs previously recognised as an expense is prohibited.

5.4 Software

When determining whether computer software is to be classified as property, plant and equipment or as an intangible asset, judgement must be used to assess whether the tangible or intangible element is more significant. For example, computer software for a computer-controlled machine or tool that cannot operate without that specific software is an integral part of the related hardware and it is treated as property, plant and equipment. The same applies to the operating system of a computer.

When the software is not an integral part of the related hardware, computer software is treated as an intangible asset where it meets the asset recognition threshold, otherwise it is expensed.

5.5 Digital library collection

Access to electronic media is generally obtained by either outright purchasing of the information or through a licence agreement. Under either method the issue of control, as well as expected economic benefits, must be considered when determining whether capitalising or expensing is appropriate.

When electronic media is purchased outright control over the asset is generally obtained to partially satisfy the asset recognition criteria. Assuming the other asset recognition criteria are satisfied the cost of the purchase must be capitalised.

When information is accessed through a licence agreement there is no access to the information unless the licence fee is paid and other terms of the agreement are met e.g. access rights and copyright clauses apply. Where this occurs, the University does not have control of the information. Consequently, the annual licence fee must be expensed and not recognised as an asset.

However, where the University has archival access, capitalising this electronic media may be appropriate as the benefit lasts for more than one year.

6. Amortisation

Intangible assets, both at cost and fair value, are subject to amortisation.

An assessment is to be undertaken to determine whether the useful life of an intangible asset is finite or indefinite.

Where indefinite, no amortisation is to be taken. The useful life of an intangible asset that is not being amortised is reviewed at least at the end of each annual reporting period. If expectations differ from previous estimates the consequential change to an intangible asset with a finite useful life is to be accounted for as a change in accounting estimate.

The digital library heritage collection is determined to have an indefinite useful life and is not amortised.

Where finite, the asset is to be amortised over its useful life, with the method reflecting the pattern in which the asset’s future economic benefits are expected to be consumed. If that pattern cannot be determined reliably, the straight-line method is to be used.

In the case of system development costs, the useful life is eight (8) years and the straight-line method is used. In the case of theses and the digital library reference collection, amortisation is calculated using the diminishing value method with a rate of 15%.

The residual value of an intangible asset with a finite useful life is nil.

The amortisation period and method of an intangible asset with a finite useful life is reviewed at least at the end of each annual reporting period. If expectations differ from previous estimates, the consequential change in the amortisation period or method is to be accounted for as a change in accounting estimate.

7. Impairment

All intangible assets must be assessed for indicators of impairment in accordance with AASB 136 Impairment of Assets.

A review for impairment indicators is performed and documented annually by Corporate Finance within FBS.

Most intangible assets will only be tested for impairment if there are indicators of impairment. Formal estimates of recoverable amount of an asset are not required if no indicators of impairment are identified.

Intangible assets with an indefinite useful life or intangible assets not yet available for use will be tested for impairment annually, irrespective of whether there are any indicators of impairment, and whenever there is an indication that the intangible asset may be impaired.

Refer to section 18 of PPL 9.20.23 Property, Plant and Equipment for further guidance regarding impairment.

8. Derecognition

An intangible asset shall be derecognised on disposal, or when no future economic benefits are expected from its use or disposal.

When an asset is sold and its selling price varies from the carrying amount (adjusted for depreciation and any impairments for the period between the beginning of the financial year and the date of sale), a gain or loss occurs which must be recognised in the Statement of Comprehensive Income.

If an asset is scrapped for no consideration before it is fully depreciated the carrying amount of the asset i.e. the gross asset value less its accumulated depreciation and accumulated impairment losses, represents a loss on disposal that must be expensed.