Identifiability: separable or contractual/legal rights

Learning objectives

• Determine whether an item is identifiable, through separability or through contractual or other legal rights.L1, L2
• Justify the identifiability of an item in an ambiguous situation (customer list, unprotected know-how).L3

Normative references

• IAS 38 §12An asset is identifiable if (a) it is separable, that 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, asset or liability, regardless of whether the entity intends to do so; or (b) it 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.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

19 questions

• True or false? An asset is identifiable only if it is both separable from the entity and arises from contractual or legal rights.L1
• Brevane obtains from a public authority a legal right to operate a radio frequency. This right can be neither sold nor transferred to a third party. Is it identifiable within the definition of an intangible asset?L2
• An analyst claims that a recipe database acquired by Gustavia is not identifiable, because Gustavia has no intention of reselling or licensing it. Where is the flaw in the reasoning?L2
• Which statement about the future economic benefits of an intangible asset is correct?L2
• True or false? An operating authorisation granted by a public authority, which the law prohibits from being transferred to a third party, can nevertheless meet the identifiability condition.L1
• True or false? A data file that the entity could rent out to third parties ceases to be separable as soon as management decides never to rent it out or sell it.L1
• Velorin holds a regional transport licence issued by the State for ten years. Regulations prohibit any transfer of this licence. On what basis is the licence identifiable?L1
• Datalys has built a database of contact details of healthcare professionals. No legal right protects this database, but comparable databases are commonly rented to laboratories. Datalys has never rented out its own and does not plan to do so. Is the database identifiable?L2
• Which of the following items held by the Ostrel group does not meet the identifiability condition?L2
• Which of the following items of Rivand are identifiable?L2
• Which of the following statements about the identifiability of an intangible asset are correct?L2
• Norvane signs a contract with a foreign manufacturer for the exclusive distribution of its products in three countries for five years, in return for an upfront fee. The contract expressly prohibits Norvane from transferring this right to another entity, and no market would allow it to be sold. The financial controller concludes that the right is not identifiable. What should be concluded?L2
• Fermelis has mastered a fermentation process that it has not patented. In its industry, manufacturers commonly license comparable processes to other producers. Fermelis has never granted a licence and its management wants to keep the process to itself. For the identifiability analysis only, what conclusion should be drawn?L3
• Over the years, Mirabel has built its own customer list, which it could rent to business partners, as is common practice in its industry. The finance director argues that, since the list is identifiable, it must be recognised as an intangible asset. What conclusion should be drawn?L3
• Kelvara separately buys two items from a competitor: a health authorisation to operate a laboratory, which regulations make non-transferable, and an unprotected file of prescribers, which Kelvara does not intend to resell but which the market would allow it to rent out. The internal auditor considers that neither item is identifiable: the authorisation because it cannot be transferred, and the file because no right protects it and Kelvara wants to keep it. Write a memo analysing the identifiability of the two items.L3
• Which of the following must the entity demonstrate before recognising an intangible asset?L1
• Mardelle, a commodity trader, acquires for a fixed price an exclusive three-year contractual right to a market data feed: the supplier undertakes not to sell this feed to any other player in the region. Mardelle expects to derive probable trading gains from it. It also organises, at its own expense, training for its traders on using the feed. Write a memo concluding on the accounting for these two items of expenditure.L3
• On obtaining control of Nexo, the Aldra group takes over an in-process research and development project, protected by patents filed by Nexo. Why does Aldra recognise this project separately from goodwill?L2
• The Pavane group obtains control of Selva in a business combination. Selva runs a registered clothing brand, created internally and absent from its balance sheet; it has spent 600,000 on advertising it over the years. An independent valuer estimates the fair value of the brand at 2,500,000 at the acquisition date. At what amount is the brand recognised in Pavane's consolidated financial statements?L3