Section 1 Recognition and Initial Measurement of Intangible Assets
1. The Concept and Recognition Conditions of Intangible Assets
(1) The Concept of Intangible Assets
Intangible assets refer to identifiable non-monetary assets without physical form owned or controlled by an enterprise, mainly including patents, non-patented technologies, trademark rights, copyrights, franchises, etc. If an asset meets one of the following conditions, it meets the identifiability standard in the definition of intangible assets:
1. It can be separated or divided from the enterprise, and can be separated or divided separately or together with related contracts, assets or liabilities. For sale, transfer, licensing, lease or exchange.
2. Derived from contractual or other legal rights, whether or not these rights can be transferred or separated from the enterprise or other rights and obligations.
The existence of goodwill cannot be separated from the enterprise itself, is not identifiable, and does not belong to the intangible assets referred to in this chapter.
Land use rights are usually accounted for as intangible assets, but land use rights that are investment real estate or accounted for as fixed assets should be accounted for in accordance with the accounting principles for investment real estate or fixed assets.
(2) Recognition conditions for intangible assets
To be recognized as an intangible asset, a project must meet the definition of intangible assets and meet the following conditions.
1. The economic benefits related to the intangible asset are likely to flow into the enterprise
As an item recognized as an intangible asset, it must meet the condition that the economic benefits generated by it are likely to flow into the enterprise. . Under normal circumstances, the future economic benefits generated by intangible assets may be included in the income from selling goods and providing services, or the enterprise uses the intangible assets to reduce or save costs, or be reflected in other benefits obtained. For example, a production and processing enterprise uses certain intellectual property rights in the production process, which reduces future production costs.
In accounting practice, professional judgment is required to determine whether the economic benefits created by intangible assets are likely to flow into the enterprise. When implementing this judgment, it is necessary to make a reasonable estimate of various economic factors that may exist within the expected service life of the intangible asset, and it should be supported by conclusive evidence. For example, whether the enterprise has sufficient human resources, high-quality management team, related hardware equipment, related raw materials, etc. to cooperate with intangible assets to create economic benefits for the enterprise. At the same time, it is more important to pay attention to the impact of some external factors, such as whether there are new technologies or new products related to the intangible assets, or whether there is a market for the products produced based on them. When making judgments, an enterprise's management should make the most robust estimate of various factors that will exist within the expected useful life of the intangible asset.
2. The cost of the intangible asset can be measured reliably
The cost can be reliably measured is a basic condition for the recognition of assets. For intangible assets, this condition is relatively more important. important. For example, the goodwill created by the enterprise and the brands and newspaper names generated internally are not recognized as intangible assets because their costs cannot be measured reliably.
2. Research and Development Expenditures
(1) Distinguishing between Research and Development Stages
For research and development projects conducted by enterprises themselves, a distinction should be made between the research stages and The development stages are accounted for separately.
l. Research stage
Research refers to original planned investigations conducted to obtain and understand new scientific or technical knowledge. Examples of research activities include: activities conducted with the intent of acquiring knowledge; the application, evaluation and final selection of research results or other knowledge; research on substitutes for materials, equipment, products, processes, systems or services; new or economical The preparation, design, evaluation and final selection of possible substitutes for improved materials, equipment, products, processes, systems or services.
The research stage is exploratory, and is used to prepare data and related aspects for further development activities. Whether the research activities that have been carried out will be transferred to development in the future, and whether intangible assets will be formed after development, etc. greater uncertainty. There will be no phased results at this stage. Therefore, relevant expenditures in the research stage should be expensed and included in the current profits and losses when incurred.
2. Development stage
Development refers to applying research results or other knowledge to a plan or design to produce new products before commercial production or use. Or materials, devices, products, etc. with substantial improvements. Examples of development activities include: design, construction, and testing of prototypes and models prior to production or use; design of tools, jigs, molds, and dies incorporating new technologies; design, construction of pilot production facilities that do not have the economic scale for commercial production and operations; design, construction and testing of selected alternatives for new or modified materials, equipment, products, processes, systems or services.
Compared with the research stage, the development stage should be the work that has completed the research stage, and to a large extent, the basic conditions for forming a new product or new technology have been met. At this time, if the enterprise can prove that development expenditure meets the definition of intangible assets and related recognition conditions, it can be recognized as intangible assets.
(2) Conditions for capitalization of relevant expenditures during the development stage
During the development stage, relevant expenditures can be capitalized into the cost of intangible assets, but the following conditions must be met at the same time:
1. It is technically feasible to complete the intangible asset so that it can be used or sold. When an enterprise determines whether the development of intangible assets is technically feasible, it should be based on the results at the current stage and provide relevant evidence and materials to prove that the necessary technical conditions for the development of the enterprise are in place and that there are no technical inadequacies. obstacles or other uncertainties. For example, the enterprise has completed all planning, design and testing activities that are necessary to enable the asset to achieve the functions, features and technologies specified in the design specifications, or has undergone expert appraisal, etc.
2. Have the intention to complete the intangible asset and use or sell it. After the results of an enterprise's R&D project are formed, whether they are sold to external parties or used and obtain economic benefits from the use should be determined by the intention of the management authority. The management of an enterprise should be able to explain its purpose of developing intangible assets and the possibility of completing the development of the intangible assets and making them available for use or sale.
3. The way intangible assets generate economic benefits includes proving that there is a market for the products produced using the intangible assets or that the intangible assets themselves have a market. If the intangible assets will be used internally, their usefulness should be proven.
The most basic condition for recognizing an intangible asset is that it is likely to bring future economic benefits to the enterprise. In terms of the way it can bring future economic benefits to the enterprise, if the relevant intangible assets are mainly used to produce new products after they are formed, the enterprise should make reliable predictions about the market conditions of the products produced using the intangible assets and should It can prove that the products produced exist in the market and can bring in the inflow of economic benefits; if the relevant intangible assets are mainly used for external sales after development, the enterprise should be able to prove that there is a demand for such intangible assets in the market. After development, there will be an external market that can be sold and can bring an inflow of economic benefits; if after development, the intangible assets are not used to produce products or sold externally, but are used within the enterprise, the enterprise should be able to prove Its usefulness to the business.
4. Have sufficient technical, financial and other resource support to complete the development of the intangible asset and have the ability to use or sell the intangible asset. This condition mainly includes:
(1) It must be technically reliable to complete the development of the intangible asset. The development of intangible assets and the technical reliability of their results are key to continued development activities.
Therefore, there must be conclusive evidence to prove that the enterprise has sufficient technical support and technical capabilities to continue to develop the intangible assets.
(2) Financial and other resource support. Financial and other resource support is the economic basis for completing the development of relevant intangible assets. Therefore, an enterprise must be able to prove that it can obtain the financial and other resources necessary for the development of intangible assets, as well as the relevant plans to obtain these resources.
(3) It can prove that the enterprise can obtain the technical, financial and other resources necessary for the development of intangible assets, as well as the relevant plans to obtain these resources. If the enterprise's own funds are insufficient to provide support, it should be able to prove the existence of other external financial supports, such as banks and other financial institutions stating that they are willing to provide the necessary funds for the development of the intangible assets.
5. The expenditures attributable to the development stage of the intangible asset can be measured reliably. Enterprises should separately account for expenditures incurred in development activities, such as directly incurred developer wages, material costs, and related equipment depreciation. When an enterprise is engaged in multiple development activities at the same time, if the expenditure incurred is used to support multiple development activities at the same time, it should be allocated among the various development activities according to reasonable standards; if it cannot be reasonably allocated, it should be expensed Included in the current profit and loss, not included in the cost of development activities.
Expenditures that cannot be distinguished between the research stage and the development stage should be treated as administrative expenses when incurred and all be included in the current profit and loss.
(3) Measurement of the cost of internally developed intangible assets
The cost of intangible assets formed by internal research and development is directly attributable to the creation, production and making of the asset. Consists of all necessary expenditures to operate in the manner intended by management. Directly attributable costs include materials, labor costs, registration fees, amortization of other patent rights and franchises used in the development of the intangible assets, and borrowing costs that can be capitalized in accordance with the treatment principles. interest expense. In the process of developing intangible assets, in addition to the above-mentioned other indirect expenses such as sales expenses and management expenses that are directly attributable to the development activities of intangible assets, the identifiable invalidity and initial operating losses that occur before the intangible assets reach their intended use shall be Training expenses and other expenses incurred in operating the intangible assets do not constitute the development costs of the intangible assets.
It is worth noting that the cost of internally developed intangible assets only includes the total expenditure incurred from the time when the capitalization conditions are met to before the intangible asset reaches its intended use. For the same intangible asset during the development process, it reaches Expenditures that have been expensed and included in current profits and losses before capitalization conditions will no longer be adjusted.