as appropriate and the carrying amount amortised over its remaining four-year useful life.
9.4 Impairment
losses
An impairment loss is the amount by which the carrying amount of an asset exceeds its
recoverable amount. [IAS 38.8]. An entity applies IAS 36 in determining whether an
intangible asset is impaired (see Chapter 20). [IAS 38.111].
IAS 36 requires an entity to perform an annual impairment test on every intangible
asset that has an indefinite useful life and every intangible asset that is not yet
available for use. Many intangible assets with indefinite lives do not generate
independent cash inflows as individual assets and so are tested for impairment with
other assets of the cash-generating unit of which they are part (see Chapter 20).
[IAS 36.10, 22]. This means that impairment losses, if any, will be allocated in
accordance with IAS 36 and, if any goodwill allocated to the cash-generating unit
has been written off, the other assets of the cash-generating unit, including the
intangible asset, will be reduced pro rata to their carrying amount (see Chapter 20
at 11.2). [IAS 36.104].
Intangible
assets
1269
Example 17.17: Impairment of an intangible asset with an indefinite useful life
A trademark acquired 10 years ago that distinguishes a leading consumer product
The trademark was regarded as having an indefinite useful life when it was acquired because the
trademarked product was expected to generate cash inflows indefinitely. However, unexpected
competition has recently entered the market and will reduce future sales of the product. Management
estimates that cash inflows generated by the product will be 20 per cent less for the foreseeable future.
However, management expects that the product will continue to generate cash inflows indefinitely at
those reduced amounts.
As a result of the projected decrease in future cash inflows, the entity determines that the estimated
recoverable amount of the trademark and the assets that comprise the cash-generating unit is less than its
carrying amount. An impairment loss is recognised for the cash-generating unit of which it is a part. Because
it is still regarded as having an indefinite useful life, the trademark would continue not to be amortised but
would be tested for impairment in accordance with IAS 36 annually, i.e. as part of the cash-generating unit,
and whenever there is an indication that it may be impaired.
Note that a trademark may generate independent cash inflows if, for example, it is
licenced to another party; otherwise, as in Example 17.17 above, it will be part of a cash-
generating unit.
9.5
Retirements and disposals
An intangible asset should be derecognised on disposal (e.g. by sale, by entering into a
finance lease, or by donation) or when no future economic benefits are expected from
its use or disposal. [IAS 38.112, 114].
The date of disposal of an intangible asset is the date the recipient obtains control of
that asset in accordance with the requirements for determining when a performance
obligation is satisfied in IFRS 15. [IAS 38.114]. In the case of a disposal by a sale and
leaseback, an entity should apply IFRS 16 (see Chapter 24).
The gain or loss on derecognition, which is determined as the difference between the
net disposal proceeds and the carrying amount of the asset, should be accounted for in
profit or loss unless IFRS 16 requires otherwise on a sale and leaseback. Gains on
disposal should not be presented as revenue because they are incidental to the entity’s
main revenue-generating activities. [IAS 38.113].
The consideration to be included in the calculation of the gain or loss is determined in
accordance with the requirements for determining the transaction price in
paragraphs 47 to 72 of IFRS 15 (see Chapter 28 at 6). [IAS 38.116]. If the transaction price
includes variable consideration, subsequent changes to the estimated amount of the
consideration included in the gain or loss on disposal are accounted for in accordance
with the requirements for changes in the transaction price in IFRS 15 (see Chapter 28
at 6.9). [IAS 38.116].
1270 Chapter 17
If the receipt of the consideration does not match the timing of the transfer of the asset
(e.g. the consideration is prepaid or paid after the date of disposal), then the arrangement
may also contain a financing component for which the transaction price will need to be
adjusted, if significant (see Chapter 28 at 6.5).
In the case of a reacquired contractual right, recognised as an intangible asset in a
business combination accounted for under IFRS 3, if the right is subsequently reissued
or sold to a third party, any gain or loss is determined using the remaining carrying
amount of the reacquired right. [IAS 38.115A].
9.5.1
Derecognition of parts of intangible assets
The standard requires an entity to recognise the cost of replacing a part of an
intangible asset as a component of the asset’s carrying amount and to derecognise
that component when the part is replaced. ‘If it is not practicable for an entity to
determine the carrying amount of the replaced part, it may use the cost of the
replacement as an indication of what the cost of the replaced part was at the time it
was acquired or internally generated.’ [IAS 38.115]. As noted by the standard, the
nature of intangible assets is such that, in many cases, there are no additions or
replacements that would meet its recognition criteria, so this should be an unlikely
event (see 3.3 above). [IAS 38.20].
However, this requirement raises the question of how to account for the disposal of a
part of a larger intangible item, acquired in a single transaction but capable of being
subdivided for separate disposal. An example would be the division of the global rights
to sell a particular product into a number of agreements providing exclusive rights over
a particular continent or other geographic territory. In this case, the part disposed of is
an identifiable and separable part of the original intangible asset. Because the rights are
exclusive, the part still meets the definition of an intangible asset because it is embodied
in legal rights that allow the acquirer to control the benefits arising from the asset, either
by providing access to earn revenues in that geographic market or by restricting the
access of others to that market. [IAS 38.13]. In that case, an entity would apply the
requirements above for the derecognition of a replacement part of an asset, by
determining the carrying amount of the separate part or, if to do so is impracticable,
deducting the proceeds of disposal from the depreciated replacement cost of the
original asset (in effect treating the value of the newly separated part as an indicator of
original cost).
Where the subdivision of rights is not established on an exclusive basis, it would be more
difficult to regard a separable component of the original intangible as having been
disposed of. For example, rights might be assigned to a third party over a geographic
area, but the entity retains the ability to sell goods in that market as well. In such
circumstances it may not be appropriate to derecognise a portion
of the original
intangible asset. Instead the entity may have transferred a right of use (or lease) over the
asset to the third party, or entered into a form of joint arrangement. The issues raised
by the partial disposal of previously undivided interests in property, plant and
equipment are discussed in Chapter 18.
Accounting for the partial derecognition of goodwill on the disposal of an operation that
forms part of a cash-generating unit is discussed in Chapter 20 at 8.5.
Intangible
assets
1271
10 DISCLOSURE
The main requirements in IAS 38 are set out below, but it may be necessary to refer to
the disclosure requirements of IFRS 5 in Chapter 4, the disclosure requirements of
IAS 36 in Chapter 20 in the event of a disposal or impairment, and the fair value
disclosures in IFRS 13 in Chapter 14 when fair value is used or disclosed.
10.1 General
disclosures
IAS 38 requires certain disclosures to be presented by class of intangible assets. A class
of intangible assets is defined as a grouping of assets of a similar nature and use in an
entity’s operations. The standard provides examples of classes of assets, which may be
disaggregated (or aggregated) into smaller (or larger) groups if this results in more
relevant information for the users of the financial statements (see 8 above for examples
of classes of intangible assets). [IAS 38.119]. Although separate information is required for
internally generated intangible assets and other intangible assets, these categories are
not considered to be separate classes when they relate to intangible assets of a similar
nature and use in an entity’s operations. Hence the standard requires the following
disclosures to be given for each class of intangible assets, distinguishing between
internally generated intangible assets and other intangible assets:
(a) whether the useful lives are indefinite or finite and, if finite, the useful lives or the
amortisation rates used;
(b) the amortisation methods used for intangible assets with finite useful lives;
(c) the gross carrying amount and any accumulated amortisation (aggregated with
accumulated impairment losses) at the beginning and end of the period;
(d) the line item(s) of the statement of comprehensive income in which any
amortisation of intangible assets is included; and
(e) a reconciliation of the carrying amount at the beginning and end of the period
showing:
(i) additions, indicating separately those from internal development, those
acquired separately, and those acquired through business combinations;
(ii) assets classified as held for sale or included in a disposal group classified as
held for sale in accordance with IFRS 5 and other disposals;
(iii) increases or decreases during the period resulting from revaluations and from
impairment losses recognised or reversed in other comprehensive income in
accordance with IAS 36 (if any);
(iv) impairment losses recognised in profit or loss during the period in accordance
with IAS 36 (if any);
(v) impairment losses reversed in profit or loss during the period in accordance
with IAS 36 (if any);
(vi) any amortisation recognised during the period;
(vii) net exchange differences arising on the translation of the financial statements
into the presentation currency, and on the translation of a foreign operation
into the presentation currency of the entity; and
(viii) other changes in the carrying amount during the period. [IAS 38.118].
1272 Chapter 17
The standard permits an entity to present the reconciliation required under (e) above
either for the net carrying amount or separately for the gross carrying amount and the
accumulated amortisation and impairments.
IAS 1.38 requires comparative information for the reconciliation in (e) above.
An entity may want to consider separate disclosure of intangible assets acquired by way
of government grant or obtained in an exchange of assets, even though disclosure is not
specifically required under (e)(i) above.
An example of these general disclosures is given by International Consolidated Airlines
Group, S.A.
Extract 17.10: International Consolidated Airlines Group, S.A. (2017)
Notes to the consolidated financial statements [extract]
2. Significant
accounting
policies [extract]
Intangible assets
a Goodwill
Goodwill arises on the acquisition of subsidiaries, associates and joint ventures and represents the excess of the
consideration paid over the net fair value of the identifiable assets and liabilities of the acquiree. Where the net fair value of the identifiable assets and liabilities of the acquiree is in excess of the consideration paid, a gain on bargain purchase is recognised immediately in the Income statement.
For the purposes of assessing impairment, goodwill is grouped at the lowest levels for which there are separately
identifiable cash flows (cash generating units). Goodwill is tested for impairment annually and whenever indicators
exist that the carrying value may not be recoverable.
b Brands
Brands arising on the acquisition of subsidiaries are initially recognised at fair value at the acquisition date. Long
established brands that are expected to be used indefinitely are not amortised but assessed annually for impairment.
c Customer loyalty programmes
Customer loyalty programmes arising on the acquisition of subsidiaries are initially recognised at fair value at the
acquisition date. A customer loyalty programme with an expected useful life is amortised over the expected
remaining useful life. Established customer loyalty programmes that are expected to be used indefinitely are not
amortised but assessed annually for impairment.
d Landing rights
Landing rights acquired in a business combination are recognised at fair value at the acquisition date. Landing
rights acquired from other airlines are capitalised at cost.
Capitalised landing rights based outside the EU are amortised on a straight-line basis over a period not exceeding
20 years.
Capitalised landing rights based within the EU are not amortised, as regulations provide that these landing rights
are perpetual.
e Contract based intangibles
Contract based intangibles acquired in a business combination are recognised initially at fair value at the acquisition
date and amortised over the remaining life of the contract.
f Software
The cost to purchase or develop computer software that is separable from an item of related hardware is capitalised
separately and amortised on a straight-line basis generally over a period not exceeding five years, with certain
specific software developments amortised over a period of up to 10 years.
Intangible
assets
1273
g Emissions allowances
Purchased emissions allowances are recognised at cost. Emissions allowances are not revalued or amortised but are
tested for impairment whenever indicators exist that the carrying value may not be recoverable.
15.
Intangible assets and impairment review [extract]
a Intangible
assets
1
2
Bra
nd
Total
loyalty
ammes
anding
rights
Other
Goodwill
L
Customer
ogr
€ million
pr
Cost
Balance at January 1, 2016
605
451
253
1,684
905
3,898
Additions
–
– – –
154
154
Disposals
–
– – –
(19)
(19)
Reclassifications
–
– – – 20 20
Exchange movements
(7)
–
–
(128)
(100)
(235)
Balance at December 31, 2016
598
451
253
1,556
960
3,818
Additions
–
– – 1
174
175
Disposals
–
– – –
(24)
(24)
Exchange movements
(2)
–
–
(38)
(34)
(74)
December 31, 2017
596
451
253
1,519
1,076
3,895
Amortisation and impairment
Balance at January 1, 2016
249
–
–
86
368
703
Charge for the year
–
– – 6 98
104
Impairment charge recognised during
the year3
–
– – 14 – 14
Reclassifications
–
– – – 9 9
Exchange movements
–
– – (8)
(41)
(49)
Balance at December 31, 2016
249
–
–
98
434
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 251
