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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off”][et_pb_row admin_label=”Row”][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://www.frs102.com/members/premium-toolkit/” type=”big” color=”red”] Return to Main Index[/button] [/et_pb_text][/et_pb_column][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”https://uk.frs102.com/members/premium-toolkit/section-18/” type=”big” color=”red”] Return to Section 18 Home[/button] [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_text admin_label=”Main Body Text” background_layout=”light” text_orientation=”justified” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]Measurement after initial recognition
Extract from FRS 102 Section 18.18-18.18H
18.18 An entity shall measure intangible assets after initial recognition using the cost model (in accordance with paragraph 18.18A) or the revaluation model (in accordance with paragraphs 18.18B to 18.18H). Where the revaluation model is selected, this shall be applied to all intangible assets in the same class. If an intangible asset in a class of revalued intangible assets cannot be revalued because there is no active market for this asset, the asset shall be carried at its cost less any accumulated amortisation and impairment losses.
18.18A Under the cost model, an entity shall measure its assets at cost less any accumulated amortisation and any accumulated impairment losses. The requirements for amortisation are set out in paragraphs 18.19 to 18.24.
18.18B Under the revaluation model, an intangible asset shall be carried at a revalued amount, being its fair value at the date of revaluation less any subsequent accumulated amortisation and subsequent accumulated impairment losses, provided that the fair value can be determined by reference to an active market The requirements for amortisation are set out in paragraphs 18.19 to 18.24.18.18C The revaluation model does not allow:
(a) the revaluation of intangible assets that have not previously been recognised as assets; or
(b) the initial recognition of intangible assets at amounts other than cost.
18.18D Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period.
18.18E If the fair value of a revalued intangible asset can no longer be determined by reference to an active market in accordance with the requirements of paragraph 18.18B, the carrying amount of the asset shall be its revalued amount at the date of the last revaluation by reference to the active market, less any subsequent accumulated amortisation and any subsequent accumulated impairment losses.
18.18F The revaluation model is applied after an asset has been initially recognised at cost. However, if only part of the cost of an intangible asset is recognised as an asset because the asset did not meet the criteria for recognition until part of the way through the process (see paragraph 18.10A), the revaluation model may be applied to the whole of that asset
Reporting gains and losses on revaluations
18.18G If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be recognised in other comprehensive income and accumulated in equity. However, the increase shall be recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss.
18.18H The decrease of an asset’s carrying amount as a result of a revaluation shall be recognised in other comprehensive income to the extent of any previously recognised revaluation increase accumulated in equity, in respect of that asset. If a revaluation decrease exceeds the accumulated revaluation gains recognised in equity in respect of that asset, the excess shall be recognised in profit or loss.
OmniPro comment
The section provides two choices; to apply the cost model or the revaluation model.
Under the cost model an entity will carry the asset at its cost as determined on initial recognition as detailed above less accumulated amortisation and subsequent impairment losses.
Note the revaluation model can only be utilised where there is an active market. It is not possible to use a valuation technique (even for intangibles recognised under the valuation model on acquisition). An active market is a market in which all the following conditions exists:
– The items traded in the market are homogeneous;
– Willing buyers and sellers can normally be found at any time; and
– Prices are available to the public.
As a result of the need for an active market the volume of entities being able to adopt the revaluation option for intangible assets will be very limited.
Where the revaluation option is available and is chosen by an entity, the carrying amount should be the fair value at the date of revaluation less accumulated amortisation and subsequent impairment losses. Revaluations should be applied to all asset classes. It is permitted to apply the revaluation model to the whole of an intangible asset even if part of that asset was expensed because it did not meet the recognition criteria. That said, an intangible asset which was previously expensed (whether that be by choice or due to it not meeting the recognition criteria) cannot be brought back on to the balance sheet through a revaluation.
Revaluations should be performed with sufficient regularity to ensure the carrying amount does not differ materially from the fair value at the reporting date. Therefore, there is judgement to be applied as to when a valuation is necessary. Therefore, it is likely where the intangible operates in a volatile market then it will have to be revalued every year however where it is a stable market and the difference is the carrying amount and fair value is immaterial it may not be required every year. However, given that there will be an active market it would be hard to argue why a yearly revaluation would not be accounted for.
Where a reliable revaluation can no longer be determined, the carrying amount at that date is determined to be its cost.
Revaluations gains should be posted to the OCI and then the revaluation reserve to the extent that it reverses a previous devaluation which was posted to the profit and loss. For revaluation losses, these should be recognised in OCI and the revaluation reserve for that asset except to the extent that the revaluation reserve for that asset is reduced to nil, then it should be posted to the profit and loss.
Under Section 29, deferred tax will also need to be recognised on the uplift in value on revaluation at the standard rate of tax. The posting of deferred tax and its movement will follow the treatment with regard to the revaluation adjustment with respect to whether it is posted to OCI or the profit and loss. See example 9 in Section 17 of this website for an illustration of how the movement in revaluations are accounted for including any deferred tax impact.
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