(b) the cost of the asset can be measured reliably. [IAS 38.21].
Although IAS 38 does not define ‘probable’, it is defined in other standards as ‘more likely
than not’. [IAS 37.23, IFRS 5 Appendix A]. In assessing whether expected future economic benefits
are probable, the entity should use reasonable and supportable assumptions that represent
management’s best estimate of the set of economic conditions that will exist over the useful
life of the asset. [IAS 38.22]. In making this judgement the entity considers the evidence
available at the time of initial recognition, giving greater weight to external evidence.
[IAS 38.23].
1224 Chapter 17
This test (that the item meets both the definition of an intangible asset and the criteria
for recognition) is performed each time an entity incurs potentially eligible
expenditures, whether to acquire or internally generate an intangible asset or to add to,
replace part of, or service it subsequent to initial recognition. [IAS 38.18]. If these criteria
are not met at the time the expenditure is incurred, an expense is recognised and it is
never reinstated as an asset. [IAS 38.68, 71].
The guidance in IAS 38 on the recognition and initial measurement of intangible assets
takes account of the way in which an entity obtained the asset. Separate rules for
recognition and initial measurement apply for intangible assets depending on whether
they were:
• acquired separately (see 4 below);
• acquired by way of government grant (see 4.6 below);
• obtained in an exchange of assets (see 4.7 below);
• acquired as part of a business combination (see 5 below); and
• generated internally (see 6 below). [IAS 38.19].
The difficulties that may arise in applying these criteria when an entity enters into a
contract to buy an intangible asset for delivery in some future period are discussed in
detail (in the context of programme broadcast rights) at 3.1.1 below.
For recognition purposes IAS 38 does not distinguish between an internally and an
externally developed intangible asset other than when considering the treatment of
goodwill. When the definition of an intangible asset and the relevant recognition criteria
are met, all such assets should be recognised. [IAS 38.BCZ40]. Preparers do not have the
option to decide, as a matter of policy, that costs relating to internally generated
intangible assets are expensed if the recognition criteria in the standard are met.
[IAS 38.BCZ41].
3.1.1
When to recognise programme and other broadcast rights
Television stations frequently enter into contracts to buy programme rights related to
long-running televisions series or future sports events that are not yet available for
broadcast, sometimes over a specified period or for a certain number of showings or
viewings. Payments might be made at the beginning of or during the broadcast period,
which raises the question of when those programme rights and the related obligations
for payment should be recognised in the statement of financial position.
The IASB’s Conceptual Framework discusses the concept of executory contracts. An
executory contract is a contract, or a portion of a contract, that is equally unperformed
– neither party has fulfilled any of its obligations, or both parties have partially fulfilled
their obligations to an equal extent. [CF 4.56]. An executory contract establishes a
combined right and obligation to exchange economic resources. This combined right
and obligation are interdependent and cannot be separated, hence they constitute a
single asset or liability. [CF 4.57]. To the extent that either party fulfils its obligations under
the contract, the contract is no longer executory. If the reporting entity performs first
under the contract, that performance is the event that changes the reporting entity’s
right and obligation to exchange economic resources into a right to receive an economic
resource. That right is an asset. If the other party performs first, that performance is the
Intangible
assets
1225
event that changes the reporting entity’s right and obligation to exchange economic
resources into an obligation to transfer an economic resource. That obligation is a
liability. [CF 4.58]. Therefore, obligations under contracts that are equally proportionately
unperformed are generally not recognised as liabilities in the financial statements. For
example, liabilities in connection with non-cancellable orders of inventory or items of
property, plant and equipment are generally not recognised in an entity’s statement of
financial position until the goods have been delivered. The same approach can also be
applied to broadcast rights.
Accordingly, an entity recognises a broadcast right at the first date that it controls an
asset. The meaning of control is discussed at 2.1.2 above.
Determining the date at which control is obtained is a complex matter that depends
on the specific facts and circumstances of each case. Factors that may be relevant
include whether:
(a) the underlying resource is sufficiently developed to be identifiable. For example, a
right to broadcast a film or play might not be sufficiently developed until a
manuscript or screenplay is written or a director and actors are hired. For a right
to broadcast a sporting event to be identifiable it might be appropriate to establish
the existence of a venue, participants or the number or timing of events subject to
the right;
(b) the entity has legal, exclusive rights to broadcast (with exclusivity potentially
defined in terms of a defined period or geographical area);
(c) there is a penalty payable for non-delivery of the content (e.g. the film or sporting
event subject to the broadcast right);
(d) it is probable that the event will occur or the content will be delivered (e.g.
completion of a film or a lack of history of cancellations, strikes or rain-outs); and
(e) it is probable that economic benefits will flow to the entity.
Example 17.2: Determining when to recognise a broadcast right
A sporting competition – rights secured over a number of seasons
Entity A (the licensee) signs a contract with a licensor for the exclusive rights to broadcast matches in a long-
established sporting competition covering the whole season for a number of years. The entity is required to
pay agreed amounts at the start of each season, with the rights to that season and future seasons reverting to
the licensor if payment is not made on time. Entity A concludes that an obligation does not exist until the
beginning of each season for the amount payable to secure rights for that season.
Based on an evaluation of the factors above, the entity concludes that it has an asset for the rights to broadcast
matches in each season and recognises that asset at the start of each season. The entity discloses a commitment
for amounts payable in future years without recognising any asset or liability at that time.
Rights to broadcast the future output of a film production company
Entity B (the licensee) signs a contract with a film production company (the licensor) whereby the entity
agrees to pay amounts in the future for a specified number of films that the licensor will release in
that year,
but neither the licensee not the licensor knows which films will be released when they sign the contract.
Based on an evaluation of the facts and circumstances, Entity B concludes that the underlying resource
(the films) is not sufficiently developed to be identifiable at the time of signing the contract. Instead, the
entity concludes that the criteria for recognising an intangible asset are not met until delivery of the films
by the licensor.
1226 Chapter 17
This approach is illustrated in the extract from Vivendi below, which distinguishes
between contracts requiring recognition and commitments to pay amounts in future
periods when content is delivered.
Extract 17.3: Vivendi S.A. (2017)
Notes to the Consolidated Financial Statements [extract]
10.2. Contractual content commitments [extract]
Commitments given recorded in the Statement of Financial Position: content liabilities [extract]
Minimum future payments as of
Total
December 31, 2017
minimum
future
payments
as of
Due
in
After December 31,
(in millions of euros)
Total 2018
2019-2022
2022
2016
Music royalties to artists and repertoire owners
1,843
1,830
13
–
1,938
Film and television rights (a)
139
139
–
–
175
Sports rights
468
468
–
–
461
Creative talent, employment agreements and others
132
42
88
2
69
Content liabilities
2,582 2,479 101 2 2,643
Off-balance sheet commitments given/(received) [extract]
Minimum future payments as of December 31,
Total
2017
minimum
future
payments
as of
Due
in
After December 31,
(in millions of euros)
Total
2018
2019-2022
2022
2016
Film and television rights (a)
2,724
1,086
1,600
38
2,785
Sport rights
2,022 (b)
804
1,200
18
2,661
Creative talent, employment agreements and others (c)
1,112
481
553
78
1,003
Given commitments
5,858
2,371
3,353
134
6,449
Film and television rights (a)
(212)
(109)
(103)
–
(189)
Sport rights
(16)
(7)
(9)
–
(25)
Creative talent, employment agreements and others (c)
not available
Received commitments
(228)
(116)
(112)
–
(214)
Total net
5,630
2,255
3,241
134
6,235
As illustrated in Extract 17.2 at 2.2.2 above, ITV follows a similar type of approach for
acquired programme rights under which an asset is recognised as payments are made
and is recognised in full when the acquired programming is available for transmission.
3.2 Measurement
On initial recognition an intangible asset should be measured at cost. [IAS 38.24]. The
standard defines this as the amount of cash or cash equivalents paid or the fair value of
other consideration given to acquire an asset at the time of its acquisition or
Intangible
assets
1227
construction. When the nature of the consideration given is governed by other IFRSs,
the cost of the asset is the amount initially recognised in accordance with the specific
requirements of that standard, e.g. IFRS 2. [IAS 38.8].
IAS 38’s initial measurement depends, in part, on the manner in which the asset is
acquired and these are discussed in more detail at 4 to 7 below. The components of the
cost of an internally generated intangible asset are discussed in more detail at 6.3 below.
3.3 Subsequent
expenditure
Although IAS 38 is based on a general recognition principle that applies to both initial
acquisition and subsequent expenditures, the hurdle for the recognition of subsequent
expenditure as an addition to an intangible asset is set higher, because it must first be
confirmed that the expenditure is not associated with the replacement of an existing
asset (see 9.5.1 below) or the creation of an internally generated intangible that would
not be eligible for recognition under the standard (see 6 below). The standard presumes
that only rarely will subsequent expenditure, i.e. expenditure incurred after the initial
recognition of an acquired intangible asset or after completion of an internally generated
intangible asset, be recognised in the carrying amount of an asset. In most cases,
subsequent expenditures are likely to maintain the expected future economic benefits
embodied in an existing intangible asset rather than meet the definition of an intangible
asset and the recognition criteria in IAS 38. The standard also notes that it is often
difficult to attribute subsequent expenditure directly to a particular intangible asset
rather than to the business as a whole. [IAS 38.20].
Capitalisation of subsequent expenditure on brands, mastheads, publishing titles,
customer lists and similar items is expressly forbidden even if they were initially
acquired externally, which is consistent with the general prohibition on recognising
them if internally generated. This is because the standard argues that such expenditure
cannot be distinguished from the cost of developing the business of which they are a
part. [IAS 38.20, 63]. Thus, at best such expenditure creates unrecognised internally
generated goodwill that might be crystallised only in a business combination.
4 SEPARATE
ACQUISITION
4.1 Recognition
Separately acquired intangible rights will normally be recognised as assets. IAS 38
assumes that the price paid to acquire an intangible asset usually reflects expectations
about the probability that the future economic benefits embodied in it will flow to the
entity. In other words, the entity always expects there to be a flow of economic benefits,
even if it is uncertain about the timing or amount. [IAS 38.25]. Therefore, the standard
assumes that the cost of a separately acquired intangible asset can usually be measured
reliably, especially in the case of cash or other monetary purchase considerations.
[IAS 38.26].
Not all external costs incurred to secure intangible rights automatically qualify for
capitalisation as separately acquired assets, because they do not
meet the definition of
an intangible asset in the first place. An entity that subcontracts the development of
1228 Chapter 17
intangible assets (e.g. development-and-supply contracts or R&D contracts) to other
parties (its suppliers) must exercise judgement in determining whether it is acquiring an
intangible asset or whether it is obtaining goods and services that are being used in the
development of an intangible asset by the entity itself. In the latter case, the entity will
only be able to recognise an intangible asset if the expenditure meets IAS 38’s
requirements for internally-generated assets (see 6 below).
In determining whether a supplier is providing services to develop an internally
generated intangible asset, the terms of the supply agreement should be examined to
see whether the supplier is bearing a significant proportion of the risks associated with
a failure of the project. For example, if the supplier is always compensated under a
development-and-supply contract for development services and tool costs irrespective
of the project’s outcome, the entity on whose behalf the development is undertaken
should account for those activities as its own.
If the entity pays the supplier upfront or by milestone payments during the course of a
project, it will not necessarily recognise an intangible asset on the basis of those payments.
Only costs incurred after it becomes probable that economic benefits are expected to flow
to the entity will be part of the cost of an intangible asset (see 6.2 below).
4.2
Components of cost
The cost of a separately acquired intangible asset comprises:
• its purchase price, including import duties and non-refundable purchase taxes,
after deducting trade discounts and rebates; and
• any directly attributable cost of preparing the asset for its intended use, [IAS 38.27],
for example:
• costs of employee benefits arising directly from bringing the asset to its
working condition;
• professional fees arising directly from bringing the asset to its working
condition; and
• costs of testing whether the asset is functioning properly. [IAS 38.28].
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 242