Subsequent expenditure

Learning objectives

• Determine whether subsequent expenditure on an intangible asset is capitalised or recognised as an expense.L2, L3
• Recognise subsequent expenditure that maintains the asset as an expense.L2

Normative references

• IAS 38 §18Recognition requires the entity to demonstrate that the item meets the definition and the recognition criteria; this applies to costs incurred initially and to costs incurred subsequently to add to, replace part of, or service the asset.
• IAS 38 §20Additions to, or replacements of, parts of intangible assets are rare; most subsequent expenditure maintains the expected benefits and is difficult to attribute to a particular asset rather than to the business as a whole: it is capitalised only rarely. Subsequent expenditure on brands, mastheads, publishing titles, customer lists and items similar in substance, whether acquired or internally generated, is always recognised in profit or loss as incurred.

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

9 questions

• A press group holds a magazine title acquired several years ago. This year, it incurs significant expenditure to redesign the magazine's layout and relaunch its reputation. How does it account for this expenditure?L2
• True or false? Expenditure incurred to update and enrich a customer list acquired two years ago can be added to its carrying amount when it increases the list's commercial value.L2
• Why does IAS 38 consider that subsequent expenditure on an intangible asset is only rarely added to its carrying amount?L2
• The Daveron group incurs the following expenditure during the year. Which item must be recognised in profit or loss as soon as it is incurred?L3
• A year ago, Elmora acquired a cosmetics brand, recognised as an intangible asset. This year, it hires an agency to reposition the brand: a positioning study, a new logo and new graphic guidelines for the packaging. The marketing director believes this work durably strengthens the value of the brand and asks for it to be added to the brand's carrying amount. What should be concluded?L3
• The Valbrune press group acquired the masthead of a regional daily newspaper three years ago, recognised as an intangible asset. To revive sales, it runs a promotional campaign: an agency invoices it {agency_invoice}, not yet paid, and marketing staff spend time on it valued at {staff_costs}, payable at the end of the month. Record the entry for the year.L2
• Orbelle, a medical equipment wholesaler, holds a file of hospital customers bought last year and recognised as an intangible asset. It has the file's contact details corrected and completed by a data provider, paid {data_provider_fee} in cash, and then has the quality of the result checked by a consultant whose invoice of {consultant_fee} is still unpaid. Record the corresponding entry.L2
• Last year, Nephalis separately acquired an in-process research and development project on a sensor, recognised in the balance sheet as development in progress. This year, it pays {research_costs} in cash for work exploring new scientific avenues, then {development_costs} for development work incurred after all the development-phase criteria were demonstrated. Record the entry for the year.L3
• In 20X1, the Tessin group acquires Brivo in a business combination; the Brivo brand is recognised at its fair value at the acquisition date, i.e. 1,200,000. In 20X2, Tessin spends 300,000 on advertising campaigns to relaunch the Brivo brand and 200,000 to promote its own Tessin brand, created internally. Which treatment is correct in 20X2?L3