Accounting for intangibles

Audit and Technical Partner
Leavitt Walmsley Associates Ltd
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The accounting for fixed assets is, in many cases, a straightforward exercise, but it isn’t always so when it comes to the issue of intangible fixed assets and recognising such assets on the balance sheet, explains Steve Collings.

There have also been challenges by external regulators concerning the issue of capitalising intangible assets where inspectors have challenged the appropriateness of capitalising such assets (particularly internally-developed intangible assets). This article will briefly recap on some of the more common features contained within FRS 10 Goodwill and Intangible Assets which may help in alleviating some of the problems encountered by practitioners. 

The (now defunct) Accounting Standards Board (ASB) was responsible for the publication of FRS 10 and a notable feature of this standard is that it deals with both goodwill and intangible assets. The IFRS regime deals with goodwill arising through a business combination in IFRS 3 Business Combinations and intangible assets are dealt with in a separate standard, that of IAS 38 Intangible Assets. The ASB took the approach of combining both goodwill and intangible assets into one standard on the grounds that they are so closely related and to avoid accounting arbitrage that would arise as a result of giving similar items on the balance sheet different names. 

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  • Companies Act 2006
  • FRS 10
  • Separability
  • Internally-developed and purchased intangible assets
  • Subsequent measurement
  • Amortisation
  • Residual values
  • Amortisation policy

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Software Development Costs

An interesting article, thank you.

I have a client who is a start-up that have developed, using a mixture of their own time and external resources, a web based system which their customers pay to use. This looks like an intangible asset to me rather than goodwill, and it would also not seem to make sense to write off the development cost as incurred as there is a revenue matching issue. The value of the business as a whole is very much in the system they have developed.

My client's operation seems similar to the many online bookkeeping solutions now on offer (though it isn't bookkeeping related, it is another business service). Surely they capitalise their systems as intangible assets?

Perhaps there is something I've misread here, apologies if so!

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Software Development Costs

I had a similar situation where my client developed a web based retail system in the year prior to commencing the business.  I took advice from ACCA about 3 years ago and the advice was that the software should be treated as a Plant & Machinery Tangible Asset.

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Accountancy practice
The goodwill of an accountancy practice is internally generated, however, can be sold off in blocks and has a well defined market value. Presumably this cannot be recognised as an asset, but I can't think of a better valued intangible asset.

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