Question

the answer of the case study must be at least 600 words.

CASE STUDY 1. Canto has acquired a UK company, Bento, which owns and operates a social media site on which the public can post material relating to any particular topic. The cost of setting up the site was S3 million. The company generates revenue by selling advertising space on the site. The domain name is protected legally through registration with the national authority. Bento has attempted to build up customer relationships with the advertisers on the site and expects the customers to continue to trade with the entity. There are no contracts with those customers. Bento also uses the site to trade in transferable domain names. Bento owns the names and allows purchasers of the names to use the name for a period of five years before it reverts back to Bento. Bento has itself purchased the names from the national regulator. Bento expects to achieve an 80% margin on the sale of the domain names. Required: Advise Canto on whether the above items should be accounted for as intangible assets under IFRS for SMES and discuss the key differences between accounting for the recognition of intangible assets other than goodwill under IFRS for SMES.

.
Plagiarism is strictly prohibited

Answer 1

IAS 38 provides for recognition of Intangible assets in books of Companies .

the IAS CLEARLY mentions that a self generated intangible assets cannot be recorded in books of companies.

further IAS says that intangible assets is to be recorded only when following criteria are meet

1 . assets is identifiable

2. Company expects future economic benefits form same

the IAS Provides certain recognition related exemptions to SME Companies which can be prescribed as follow:-

IFRS for SMEs
Section 18 Intangible Assets other than Goodwill
IFRS
IAS 38 Intangible Assets
Impact assessment
Scope
This section is applicable to all intangible assets other than goodwill and intangible assets held for sale in the ordinary course of business. Furthermore, the scope excludes financial assets and mineral rights and mineral reserves.
The standard applies to all intangibles other than those within the scope of another standard, financial instruments, exploration and evaluation assets and expenditure on the development and extraction of minerals, oil, natural gas and similar non- regenerative resources.
IFRS explicitly excludes all intangible assets that are dealt with under other standards. This would be a natural presumption in Section 18 as other intangible assets, such as lease rights, etc., have their own applicable sections.
One difference, for those entities in the oil and mining sectors, is the inclusion of exploration and evaluation intangible assets within the scope of Section 18.
Definition of an intangible asset
An intangible asset is an identifiable non-monetary asset without physical substance. Identifiablility arises when the asset is separable or arises from contractual or other legal rights.
An intangible asset is an identifiable non-monetary asset without physical substance. Identifiablility arises when the asset is separable or arises from contractual or other legal rights.
There is no difference in definition between IFRS for SMEs and IFRS.
Recognition
An entity may recognise an intangible asset if it is probable that there are expected future economic benefits, a reliably measurable cost/value and it does not result from expenditure incurred internally on an intangible asset.
An intangible asset is recognised if, and only if, it is probable that there are expected future benefits and cost that can be reliable measured.
A significant difference exists between IFRS and IFRS for SMEs in that the latter does not allow for any internally generated intangible assets to be capitalised to the balance sheet.
This could particularly affect companies that operate in sectors where numerous intangible assets are generated — such as the pharmaceutical industry.
Initial measurement
Initial measurement is dependant on the manner in which the intangible asset is acquired:
• Separate acquisition — at cost
• Business combination — at fair value at the acquisition date
• Government grant — at the fair value of the grant
• Exchange of assets — at the fair value of the asset or cost when the transaction lacks commercial substance or fair values cannot be reliably measured.
Initial measurement is dependant on the manner in which the intangible asset is acquired:
• Separate acquisition — at cost
• Business combination — at fair value at the acquisition date
• Government grant — at the fair value of the grant or at the nominal amount
• Exchange of assets — at the fair value of the asset or cost when the transaction lacks commercial substance or fair values cannot be reliably measured.
IFRS for SMEs differs from IFRS in respect of the initial measurement of intangible assets acquired by way of a government grant as under IFRS for SMEs, such assets must be measured at fair value.
Elements of statement of financial position a CHAPTER THREE a 59

Section 18: Intangible assets other than goodwill continued
IFRS for SMEs
Section 18 Intangible Assets other than Goodwill
IFRS
IAS 38 Intangible Assets
Impact assessment
Subsequent measurement
Intangible assets are measured at cost less accumulated amortisation and impairment losses.
Intangible assets may be carried at either:
• Cost less accumulated amortisation and impairment losses or
• Revalued amount less accumulated amortisation and impairment losses.
IFRS for SMEs differs for IFRS in that it does not permit the application of the revaluation model to intangible assets.
Amortisation
Intangible assets must be amortised over there useful lives. If the useful life is not determinable then it is presumed to be 10 years.
The depreciable amount is allocated over the life of the asset that reflects the pattern in which the asset’s future economic benefits are expected to be consumed. If the pattern cannot be reliably determined, then the straight-line method is utilised.
Intangible assets must be assessed as to whether they have a finite or an indefinite life. Intangible assets with finite lives are amortised over their useful lives. Those with an indefinite life is not amortised and subject to an annual impairment test.
The depreciable amount is allocated over the life of the asset that reflects the pattern in which the asset’s future economic benefits are expected to be consumed. If the pattern cannot be reliably determined, then the straight-line method is utilised.
IFRS for SMEs differs from IFRS in that it does not permit intangible assets to be classified as an asset with an indefinite life. A useful life is required to be established for all intangible assets, or it is assumed to be 10 years.
There is no difference between IFRS for SMEs and IFRS.
Residual values
Residual values are permitted if there is a commitment by a third party to purchase the asset, or there is an active market and residual value can be determined by reference to this market and the market is expected to be in existence at the end of the asset’s useful life.
Residual values are permitted if there is a commitment by a third party to purchase the asset, or there is an active market and residual value can be determined by reference to this market and the market is expected to be in existence at the end of the asset’s useful life.
There is no difference between IFRS for SMEs and IFRS.
Review of amortisation
The entity will consider at each reporting date whether there are any indicators that there has been a change in useful life, residual amount or amortisation method. If there is an indicator, this will be adjusted as a change in estimate.
The entity will review at each reporting date whether there has been a change in useful life, residual amount or amortisation method. If there is an indicator, this will be adjusted as a change in estimate.
IFRS for SMEs differs from IFRS in that there is no requirement to review amortisation method, useful life and residual values at each reporting date.
Derecognition
An intangible asset is derecognised on disposal, or when there are no future benefits expected from its use or disposal.
An intangible asset is derecognised on disposal, or when there are no future benefits expected from its use or disposal. The gain or loss on disposal is determined as the difference between carrying value and the net disposal proceeds and is recognised in profit or loss.
IFRS contains some additional guidance on the gain or loss on disposal. However, the same result would be achieved when applying IFRS for SMEs.

conclusion:-

Canto can recognise Same as Intangible assets.