Philippine Accounting Standard 38

Philippine Accounting
Standard 38
Intangible Assets
PAS 38 Intangible Assets
To specify the accounting treatment for intangible assets

Objective Not dealt with in another standard
PAS 38 does NOT apply to:
Goodwill acquired in a business combination (PFRS 3)

Intangible assets held for inventory (PAS 2)
Intangible assets classified as held for sale (PFRS 5)
What are Intangible Assets?
 Identifiable non-monetary assets without physical substance
Control of an Intangible Asset Future economic benefits
Recognition
Future economic benefits Cost reliably measurable
 Purchase price
 Directly attributable costs
Assets with both intangible & tangible elements
YES Property, Plant & Equipment
Intangible Integral
Component Part?
NO Intangible Assets
Financial Statement Presentation
GOODWILL Intangible Assets

Internally generated intangible assets
Development Application of research findings or other knowledge to a plan or design for

the production of new or substantially improved materials, devices,
products, processes, systems or services, before the start of commercial
production or use
C
 Probable future economic benefits
A
P  Intention to complete and use or sell it
I
T  Resources adequate and available to complete and use or sell
A
 Ability to use or sell the asset
L
I  Technical feasibility
Z
E  Expenditures reliably measurable
Research Original and planned investigation undertaken with the prospect of

gaining new scientific or technical knowledge and understanding
XxX DO NOT CAPITALIZE XxX

(expense in P/L as incurred)
Goodwill  Do not recognize as an asset
Other assets  Brands, customer list, publishing titles  Do not Capitalize

Initial measurement
COST
 Directly attributed or allocated

 From the date of meeting the criteria
 Conditions for capitalization of development
costs have been met
Intangible Assets Subsequent measurement
Cost model Revaluation model
COST FAIR VALUE
Subsequent Accumulated
Accumulated Amortization
Amortization
Accumulated Impairment Loss Subsequent Accumulated

Impairment Loss
Intangible Assets Useful Life
Finite Indefinite
e.g. Software , e.g. Brands

Licenses
 Assume residual value = zero  Do not amortize

 Revise amortization at the end  Review useful life at the
of each financial year-end end of each financial year
Illustration:
On January 1,20x1, Entity A purchases a patent from Entity B for P300,000. Entity B, the original
owner, has held the patent for 5 years. Entity A estimates that the patent has a remaining useful life of 16
years.
The annual amortization expense is computed as follows:
Cost 300,000
Residual amount --
Depreciable amount =300,000
Divided by:(Shorter of its useful life & 20 years) 15
Annual Amortization Expense =20,000
The carrying amount of the intangible asset on December 31,20x2(after 2 years) is determined as follows:
Cost 300,000
Accumulated Amortization(20,000x2) 40,000
Carrying amount-12/31/20x2 =260,000
Alternative solution: 300,000 x 13 remaining life after 2 years / 15 = 260,000

Year 0 Year 3
Patent 300,000 Patent 260,000

Cash 300,000 Cash 260,000
To record purchase of patent To record purchase of patent
Amortization Expense-Patent 20,000 Amortization Expense 20,000

Patent 20,000 Patent 20,000
To record annual amortization Expense To record annual amortization Expense
Year 1
Patent 280,000
Cash 280,000
To record purchase of patent
Amortization Expense-Patent 20,000

Patent 20,000
To record annual amortization expense
Illustration:
The Company has a software on its balance sheet as an Intangible asset. It cost P15,000.The Company
estimates that the software will have a useful life of just 3 years. At the end of its useful life, the company
reckons that there will be no residual value. The Company will use straight-line method to report the annual
amortization expense of the software.
The annual amortization expense is computed as follows:
Cost 15,000
Residual value 0
Depreciable amount =15,000
Divided by:(useful life) 3
Annual amortization expense =5,000
Journal entries:
Year 0 Year 2
Software 15,000 Software 5,000
Cash 15,000 Cash 5,000
to record the purchase of software to record the purchase of software
Amortization expense-Software 5,000 Amortization expense-Software 5,000

Software 5,000 Software 5,000
to record the annual amortization to record the annual amortization
Year 1 Year 3
Software 10,000 Software 0
Cash 10,000 Cash 0
to record the purchase of software to record the purchase of software
Amortization expense-Software 5,000

Software 5,000
to record the annual amortization
Intangible Assets
Derecognition
On Disposal No future economic

benefit
GAIN or LOSS
=Net Disposal Proceeds - Carrying Amount
**GAIN or LOSS is included in P/L**

Philippine Accounting Standard 38

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Philippine Accounting

To specify the accounting treatment for intangible assets

PAS 38 does NOT apply to:

Goodwill acquired in a business combination (PFRS 3)

 Identifiable non-monetary assets without physical substance

Control of an Intangible Asset Future economic benefits

Future economic benefits Cost reliably measurable

YES Property, Plant & Equipment

GOODWILL Intangible Assets

Development Application of research findings or other knowledge to a plan or design for

Research Original and planned investigation undertaken with the prospect of

XxX DO NOT CAPITALIZE XxX

Goodwill  Do not recognize as an asset

Other assets  Brands, customer list, publishing titles  Do not Capitalize

 Directly attributed or allocated

Cost model Revaluation model

COST FAIR VALUE

Accumulated Impairment Loss Subsequent Accumulated

e.g. Software , e.g. Brands

 Assume residual value = zero  Do not amortize

The annual amortization expense is computed as follows:

Alternative solution: 300,000 x 13 remaining life after 2 years / 15 = 260,000

Patent 300,000 Patent 260,000

Amortization Expense-Patent 20,000 Amortization Expense 20,000

Amortization Expense-Patent 20,000

The annual amortization expense is computed as follows:

Amortization expense-Software 5,000 Amortization expense-Software 5,000

Amortization expense-Software 5,000

On Disposal No future economic

=Net Disposal Proceeds - Carrying Amount

**GAIN or LOSS is included in P/L**

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GAIN or LOSS is included in P/L