Recoverable amount of intangible assets

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Industry consultant, AASB Board member and Principal, Australian Financial Reporting Solutions and content provider for the CaseWare Financials template, Carmen Ridley provides her take on the tricky subject of recoverable amounts of intangible assets, specifically related to R&D entities and capitalising development assets.

ASIC has issued a media release about a listed entity writing off a development asset which it was not able to support (ASIC media release 14-218MR).

Entities who are undertaking research and development activities are required to comply with the requirements of AASB 138 Intangible Assets. AASB 138 requires entities to expense all research costs as incurred, however development costs can be capitalised if the following six criteria are met:

  • the technical feasibility of completing the intangible asset so that it will be available for use or sale;
  • its intention to complete the intangible asset and use or sell it;
  • its ability to use or sell the intangible asset;
  • how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset;
  • the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
  • its ability to measure reliably the expenditure attributable to the intangible asset during its development.

If an entity defers expensing of development costs then they should be able to demonstrate how each of the criteria above have been satisfied.

Entities and their auditors should confirm that appropriate documentation to support the capitalisation is in place at the initial recognition date and a rigorous assessment is made at each reporting date to confirm each of the criteria continues to be met.

For further information on any matter covered in this article, please contact Carmen Ridley on