Lesson 1 of 7 · 13 min
Intangible assets: definition, purchase and business combinations
An intangible asset is recorded at what was paid for it when it is bought on its own or with a whole company, and whatever part of a takeover price cannot be pinned to identifiable assets becomes goodwill.
In short
- Intangible assets are non-monetary assets without physical substance, such as patents, copyrights, trademarks, franchises and licences.
- Under IFRS an identifiable intangible must be identifiable, controlled by the company and expected to bring future economic benefits; it is recognised if those benefits are probable and its cost can be reliably measured.
- Bought on its own (outside a business combination), an intangible is recorded at fair value, assumed equal to the price paid; a group purchase is split by each asset's fair value.
- In a business combination, the acquisition method assigns the price to every identifiable asset and liability at fair value; the excess is goodwill.
- Finite-life intangibles are amortised; indefinite-life intangibles (and goodwill) are not amortised but tested for impairment at least annually.
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