Explain Four Differences in the Recognition of Externally Acquired Intangibles

Question

Examlex · Accepted Answer

The Answer is •Ultimately, whether and how an enterprise satisfies the recognition criteria depends on the way it obtains the intangible asset: whether it acquires it externally or develops the intangible asset internally.
•Acquired intangibles readily satisfy the recognition and measurement criteria: IFRS presumes that (i)intangibles acquired from arm's-length parties meet the criterion of having probable future benefits, and that (ii)such benefits can be measured reliably.
•Internally developed intangibles must meet more stringent criteria. IAS 38 identifies two distinct stages for internally developed intangibles: a research phase and a development phase. The costs incurred in the research phase must be expensed because the activities do not relate to an identifiable product or process. Development activities are further advanced than research in terms of commercially viable products or processes. Therefore, it is possible to satisfy the criterion of probable future benefits. However, not all costs incurred in the development phase qualify for capitalization. IAS 38 provides a further list of six criteria for the capitalization of development costs.
•The difference is due to the lower reliability of measuring the benefits of internally developed intangibles, and the greater possibility of management bias in developing the estimates of those benefits.

Explain Four Differences in the Recognition of Externally Acquired Intangibles

Definitions: