IAS 38 - Intangible Assets

[TaroSushi]

Hello Community,

Would like to seek your advice on the following:
1. Company A entered into license agreement with Company B, whereby Company A can use the IP/know-how of Company B by paying Company B a fee (stated in the agreement), from the effective date. Per the agreement, Company A has to pay Company B a lump sum of $5k and further sum of $10k to be paid in 5 annual installments. Effective date of the agreement is in Dec 2022.

In Dec 2022. Company A has received an $5k invoice from Company B.

Question:
Should Company A capitalised $15k as intangible assets in FY22 upon signing the agreement i.e. accrue the remaining $10k that are to be billed in 5 annual installments? Or Company A should capitalise $5k as intangible assets in FY22 and capitalise the remaining cost upon receiving the invoice?


2. Company A manufactures product A for sale. In FY22, the Company A unable to sell the product and it has written down the value to zero. However, in FY23, Company A has decided to make use of product A as internal use, the product A has a secondhand value of $2k but the Company has also determined the value of $8k using DCF model.

Question:
How should we record the double entries on the above?

Many thanks in advance!

[JRSB]

Intangible assets acquired with variable consideration is an open matter so you can determine a policy. But is it an intangible asset?

[TaroSushi]

This is the license fee paid for accessing the know-how/IP. Was it not intangible assets?

[Marek Muc]

It appears to be a lease, and you have the option to apply either IAS 38 or IFRS 16, as outlined in IFRS 16.4 (most entities opt for IAS 38). For a licence spanning five years, you should recognise a liability and related intangible asset covering the entire period, taking into account that these future payments need to be discounted.

Can you give us more details on the nature of the IP?

BTW, could you clarify how question 2 is connected to question 1?