Cost model

Learning objectives

• Explain the carrying amount of an intangible asset under the cost model.L1, L2

Normative references

• IAS 38 §74Cost model: cost less any accumulated amortisation and any accumulated impairment losses.

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

23 questions

• True or false? Under the cost model, an intangible asset is carried at its cost less any accumulated amortisation and any accumulated impairment losses.L1
• True or false? Under the cost model, when the market price of a licence increases, its carrying amount is raised to that new price.L1
• True or false? For an intangible asset measured under the cost model, an impairment loss determined by applying IAS 36 reduces its carrying amount.L2
• True or false? Under the cost model, the carrying amount of an intangible asset whose useful life has been indefinite since initial recognition equals its cost less accumulated impairment losses only.L2
• True or false? The cost model is reserved for internally generated intangible assets; acquired intangible assets must be revalued.L1
• Under the cost model, at what amount is an intangible asset presented after initial recognition?L1
• Tessaly measures its software using the cost model. For an acquired software, the data at the reporting date are: cost 120,000; accumulated amortisation 36,000; accumulated impairment losses 10,000. What is its carrying amount?L1
• Harlan, which applies the cost model to its licences, holds a broadcasting licence acquired for 250,000, whose accumulated amortisation reaches 100,000 at the reporting date; no impairment loss has been recognised. An expert estimates the fair value of the licence at 190,000. What is its carrying amount?L2
• Quimper Data measures under the cost model a database acquired for 80,000, with amortisation of 32,000 at the reporting date. At that date, applying IAS 36, it recognises an impairment loss of 12,000, whose amount is provided by the expert. What is the carrying amount of the database after this loss?L2
• Bravane acquires an operating licence for 60,000, available for use on 1 January 20X1, and measures it under the cost model. Its useful life is 5 years, its residual value is nil and the straight-line method reflects the expected pattern of consumption. No impairment loss is recognised. What is its carrying amount at 31 December 20X3?L2
• The closing trial balance of Mirandel, which applies the cost model, shows for its acquired patents: gross amount 500,000; accumulated amortisation 180,000, including the charge for the year of 50,000; accumulated impairment losses 40,000. What carrying amount of the patents appears in the statement of financial position?L2
• Three years ago, Volterre acquired for 400,000 a licence whose useful life is assessed as indefinite; it applies the cost model. Accumulated impairment losses recognised since acquisition amount to 30,000. An intern proposes to amortise the licence over 10 years. What is the carrying amount of the licence at the reporting date?L2
• On 1 January 20X1, Tissavel acquires a right to use a patented textile pattern for 1,000,000 and will exploit it for 4 years. A competing manufacturer has contractually committed to buy this right back for 200,000 at the end of the 4 years. The entity applies the cost model and the straight-line method. What is the carrying amount of the right at 31 December 20X2?L3
• On 1 January 20X1, a dairy cooperative acquires a cheese brand for {brand_cost}; the brand's useful life is judged indefinite. The seller had amortised it over {suggested_period} years. The cooperative applies the cost model. After {years_held} years, the annual impairment tests under IAS 36 have all shown a recoverable amount above the carrying amount. What are the accumulated amortisation and the carrying amount of the brand at 31 December 20X3?L2
• A licence to manufacture a generic medicine, acquired for {licence_cost} and measured under the cost model, has accumulated amortisation of {accumulated_amortisation} at the year-end. As a competitor has launched a cheaper product, the entity performs a test under IAS 36, which results in a recoverable amount of {recoverable_amount}. Under IAS 36, when the recoverable amount is lower than the carrying amount, the difference is recognised as an impairment loss in profit or loss. Calculate the carrying amount before the test and the impairment loss.L2
• An online bank measures its internally developed payment platform at cost; the platform cost {software_cost} and has been amortised by {amortisation_to_date} to date. Following a major outage of the platform, the bank performs a test under IAS 36: the recoverable amount determined is {value_in_test}. Under IAS 36, when the recoverable amount is lower than the carrying amount, the difference is recognised as an impairment loss in profit or loss. What is the carrying amount before the test and what impairment loss must be recognised?L2
• A sports club holds rights to exploit the image of its stadium, acquired for {rights_cost} and measured under the cost model. At the year-end, accumulated amortisation stands at {accumulated_amortisation} and an impairment loss of {prior_impairment} was already recognised two years ago. The team's relegation leads to a new test under IAS 36, which gives a recoverable amount of {recoverable_amount}. Under IAS 36, when the recoverable amount is lower than the carrying amount, the difference is recognised as an impairment loss in profit or loss. Calculate the new impairment loss and the carrying amount after the test.L3
• A solar panel manufacturer acquired a patent on an anti-reflective coating for {patent_cost}, amortised on a straight-line basis over {patent_life} years with no residual value. After {years_amortised} years of amortisation, the emergence of a more efficient competing technology leads to a test under IAS 36, which shows a recoverable amount of {recoverable_amount}. No impairment loss has been recognised so far. Under IAS 36, when the recoverable amount is lower than the carrying amount, the difference is recognised as an impairment loss in profit or loss. Calculate the carrying amount before the test and the impairment loss.L3
• A school publisher acquired a licence to adapt a reading method for {licence_cost}, measured under the cost model; accumulated amortisation amounts to {accumulated_amortisation}. A reform of the school curriculum reduces the appeal of the method: the test performed under IAS 36 results in a recoverable amount of {recoverable_amount}. Under IAS 36, when the recoverable amount is lower than the carrying amount, the difference is recognised as an impairment loss in profit or loss. Which entry should be recorded at the year-end?L3
• A ferry company amortises on a straight-line basis over {system_life} years, with no residual value, a ticketing system acquired for {system_cost} and measured under the cost model. At the start of the year, accumulated amortisation amounts to {opening_amortisation}. At the year-end, following the loss of a sea route, a test under IAS 36 gives a recoverable amount of {recoverable_amount}. Under IAS 36, when the recoverable amount is lower than the carrying amount, the difference is recognised as an impairment loss in profit or loss. Record the charge for the year, then the impairment entry.L3
• The Sarvanel group, which applies the cost model, sells to a competitor a portfolio of subscriber contracts acquired for {cost}. At the date of disposal, accumulated amortisation amounts to {accumulated_amortisation} and accumulated impairment losses to {accumulated_impairment}. The selling price is {sale_price}; legal costs directly related to the disposal amount to {disposal_costs}. Calculate the carrying amount at the date of disposal and the result on disposal.L3
• The Quintéra laboratory, which applies the cost model, sells for cash, for {sale_price}, a marketing authorisation dossier acquired for {cost}. At the date of sale, the asset carries {accumulated_amortisation} of accumulated amortisation and {accumulated_impairment} of accumulated impairment losses. No costs of disposal are incurred. The sales director wants to present the price in revenue. Record the derecognition entry.L3
• The Sorvelle group, which applies the cost model, holds an indefinite-life brand acquired for 900,000. An impairment loss of 150,000 was recognised two years ago, with no reversal since. The controller proposes to disclose the carrying amount after deducting notional amortisation of 90,000. Which carrying amount must be disclosed for this brand?L3