Long read: FRS 102 intangible assets and goodwill emerging issues

intangible assets

What this essentially means is the difference represents how much the buyer is willing to pay for the business as a whole, over and above the value of its individual assets alone. For example, if XYZ Company paid $50 million to acquire a sporting goods business and $10 million was the value of its assets net How to Start Your Own Bookkeeping Startup of liabilities, then $40 million would be goodwill. Companies can only have goodwill on their balance sheets if they have acquired another business. Consequently, if an intangible asset has a useful life but can be renewed easily and without substantial cost, it is considered perpetual and is not amortized.

This factsheet considers the UK corporation tax regime for intangible fixed assets (IFAs), which applies to IFAs acquired or created on or after 1 April 2002. Since that time there have been numerous changes to the rules, particularly in relation to goodwill and customer-related intangibles. However, there is not necessarily a straight read across from the entries in the profit and loss account to the tax computation. Adjustments may be necessary where, for example, reinvestment relief has reduced the tax written down value of assets within the CTA09 rules or where the cost recognised for accounting purposes is subject to a valuation adjustment. For several reasons, governments at all levels may choose to provide financial assistance to companies that engage in certain activities. The accounting treatment used for grants is either the net method or the gross method.

Global sustainability standards

In May 2014 the Board amended IAS 38 to clarify when the use of a revenue‑based amortisation method is appropriate. We undertake various activities to support the consistent application of IFRS Standards, which includes implementation support for recently issued Standards. We do this because the quality of implementation and application of the Standards affects the benefits that investors receive from having a single set of global standards.

intangible assets

The reason internally generated goodwill is prohibited is because it fails the recognition criteria. If a company purchases goodwill, then that purchased goodwill can be recognised on the balance sheet. The cost of generating an intangible asset internally is often difficult to distinguish from the cost of maintaining or enhancing the entity’s operations or goodwill.


These rules apply to companies liable to UK corporation tax that hold (or have held) IFAs. These are defined, in the first instance, in line with accounting standards, although the assets are not required to be capitalised in the company’s accounts for the rules to apply. IAS 38 was revised in March 2004 and applies to What Is Accounting For Startups acquired in business combinations occurring on or after 31 March 2004, or otherwise to other intangible assets for annual periods beginning on or after 31 March 2004. The definition of an intangible asset in FRS 102 is different than under previous UK GAAP and gave rise to the need to recognise additional intangible assets that were acquired in a business combination (i.e. where a parent acquires a subsidiary).

  • Simply obtaining a valuation of goodwill does not mean it can be recognised on the balance sheet as there is still no active market.
  • For example, if XYZ Company paid $50 million to acquire a sporting goods business and $10 million was the value of its assets net of liabilities, then $40 million would be goodwill.
  • While the degrouping charge initially arises to the transferee, is it possible to elect for the charge to arise to another group company.
  • This amendment will be accounted for as a change in accounting estimate under Section 10 Accounting Policies, Estimates and Errors and hence will be applied prospectively (i.e. no retrospective restatement is needed).

However, externally generated goodwill can be recorded as an asset when a company acquires or merges with another company and pays above its fair value. According to the IFRS, are non-monetary assets without physical substance. Like all assets, intangible assets are expected to generate economic returns for the company in the future.

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Subject to such exclusions and adjustments the corporate intangible assets regime identifies the relevant entries in a company’s accounts and brings them into an exclusively income regime for corporation tax purposes. Under these rules, sums written off intangible fixed assets are usually deductible so long as their treatment is in accordance with GAAP. All receipts from the assets, including those that were capital under previous law, are revenue items for corporation tax purposes. In addition, where assets that have previously been written down are revalued upwards, past tax deductions are recovered. To assess whether costs qualify for recognition on the balance sheet, the entity must look at the overall functionality of the website.

intangible assets

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