Cost of a separately acquired intangible asset

Learning objectives

• Calculate the cost of a separately acquired intangible asset.L1, L2
• Recognise the separate acquisition of an intangible asset.L1, L2
• Identify the costs directly attributable to preparing the asset for its intended use.L1, L2, L3

Normative references

• IAS 38 §27The cost of a separately acquired asset comprises its purchase price (including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates) and any directly attributable cost of preparing the asset for its intended use.
• IAS 38 §28Examples of directly attributable costs: employee benefits arising directly from bringing the asset to its working condition, professional fees, costs of testing whether the asset is functioning properly.

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

26 questions

• An entity acquires production planning software. Which of the following items form part of the cost of the intangible asset?L3
• An entity acquires a perpetual licence for design software at a list price of {list_price}, on which the vendor grants a trade discount of {trade_discount}. It bears a non-refundable tax of {non_refundable_tax} and VAT of {recoverable_vat}, which it fully recovers. A contractor charges {installation_fees} to install the software and bring it to working condition. What is the cost of the intangible asset?L1
• A retailer acquires an online sales platform for {purchase_price}. It then incurs {configuration} of configuration and {testing} of tests of proper functioning before going live. It also spends {user_training} on training its teams and {launch_advertising} on advertising to announce the launch of the site. In the first month after going live, the site, with few visitors, makes an operating loss of {initial_operating_loss}. What is the cost of the intangible asset?L2
• An entity acquires on credit, from a vendor, a licence for inventory management software invoiced at {licence_price}. It pays {professional_fees} in cash in fees to a consultant who installs the software and checks that it works properly before it goes live. Record the initial recognition entry.L1
• 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
• Corbeline buys a software licence from a foreign vendor at a list price of 120,000. It obtains a trade discount of 10,000, pays 6,000 of non-refundable import duties and incurs 4,000 of testing to check that the software works properly before it goes live. What is the initial cost of the licence?L2
• True or false? When an entity imports separately acquired software, the import duties it cannot recover form part of the cost of the intangible asset.L1
• True or false? The salaries of the entity's IT staff who install and configure acquired software, before it goes live, are expensed because they are not paid to the software vendor.L1
• A testing laboratory, Biomeris, acquires a licence for sample-processing software. Which of the following items of expenditure is directly attributable to preparing the asset?L2
• An architecture firm, Orbis, imports building-modelling software. The vendor grants it a trade discount on the list price. Which statements about the cost of the intangible asset are correct?L2
• Velora buys from a foreign vendor complaints-management software invoiced at {invoice_price}, on which it obtains a rebate of {rebate}. It pays non-refundable import duties of {import_duties} and VAT of {recoverable_vat}, which it fully recovers. The salaries of Velora's IT staff assigned to configuring the software, before it goes live, amount to {staff_costs}. What is the cost of the intangible asset?L1
• The farming cooperative Terralis acquires a licence for a plot-mapping tool at a list price of {list_price}, less a trade discount of {trade_discount}. It bears a non-refundable tax of {non_refundable_tax} and VAT of {recoverable_vat}, which it deducts. An independent geomatics specialist charges {testing_fees} to check that the tool renders the data correctly before it is used. Determine the initial cost of the licence.L2
• The hotel group Ardena acquires on credit a licence for booking software at a price of {licence_price}; the vendor grants a rebate of {rebate}, deducted from the invoice. The salaries still owed to Ardena's IT staff who configured the software before it went live amount to {staff_costs}. Record the initial recognition entry.L1
• The Medisol clinic pays {software_price} in cash for imported medical imaging software, together with {import_duties} of import duties that it will not be able to recover. A consultant, who charges {testing_fees} payable the following month, checks that the images display correctly before first use. Record the acquisition.L2
• The veterinary clinic network Vetalia acquires patient-records software for 120,000. Before going live, it incurs 9,000 of consultants' fees to adapt the interfaces, 3,000 of testing and 6,000 of salaries of its internal project team spent on configuration. The IT department also allocates 4,000 of general overheads to the project, and training the vets costs 5,000. What is the cost of the intangible asset?L3
• A travel agency acquires an online booking engine. Which of the following items of expenditure must be expensed rather than included in cost?L1
• A chain of gyms, Fitora, acquires a class-booking app and extends it to a new city. Which of the following items of expenditure must be expensed?L2
• The haulier Navexa buys route-planning software for {purchase_price}. A consultant configures it for {configuration_fees} and the software is capable of operating as intended on 1 March 20X1. However, Navexa only brings it into use on 1 May 20X1 and pays {idle_hosting} of hosting for the period in between. Management control also allocates {allocated_overheads} of general overheads to the project. What is the cost of the intangible asset?L2
• The news website Quotidia acquires a licence for an editorial search engine for {licence_price}. Before the engine is operational, it bears {test_fees} of acceptance-testing fees and {internal_salaries} of salaries of its engineers in charge of installation. Once the engine is operational, the audience is slow to come and the business records {early_losses} of start-up losses; Quotidia also spends {new_office_training} on training the team of its new regional newsroom. Calculate the cost of the licence.L3
• Corvane's internal auditor's working paper on the acquisition of payroll software contains the following conclusions. Which one is wrong?L2
• Santeo acquired a teleconsultation platform, capable of operating as intended on 30 June 20X1 but launched to patients on 1 September 20X1. Its schedule of capitalised costs contains the following lines. Which one is an error?L2
• The ferry company Marivo acquires an online ticketing system for 300,000 and pays 20,000 for testing before it is capable of operating as intended, on 1 April 20X1. After that date, it incurs 15,000 of training for port agents, 30,000 for a launch campaign and 8,000 of fees to adjust screens while the system already operates as intended; the online business also suffers 10,000 of start-up losses. What is the initial cost of the system?L3
• Corvel buys from a third party, for 400,000, the brand of a range of biscuits; this brand meets the recognition criteria for an intangible asset. In the same year, it launches a second brand, Doria, designed by its own teams, on which it spends 150,000 on design and advertising. Which statement is correct?L2
• At 31 December 20X1, Hestia, a cosmetics group, lists the following items. Which of them are recognised as intangible assets?L3
• Which of these expenditures is recognised as an expense, with no possibility of being included in the cost of an intangible asset?L1
• Which of the following expenditures are recognised as an expense? More than one answer may be correct.L1