Intangible Assets

The Board considered removing the current requirement on residual values on intangible assets with a finite life. This was suggested because:

• The requirement for the residual value of an intangible asset to be assumed to be zero was initially included in IAS 38 as a means of preventing entities from circumventing the requirement to amortise all intangible assets. For example, by claiming that the residual value of an intangible asset was equal to or greater than the asset's carrying amount, an entity could avoid amortising the intangible asset because its depreciable amount would be nil.
• This rationale will not be relevant under the revised version of IAS 38, given that intangible assets with indefinite useful lives will not be amortised.
• It is reasonably plausible that an intangible asset, such as software, might be sold before the end of its economic life. In such cases, its residual value, as defined in IAS 38, would not be zero irrespective of whether the current conditions are met.

The staff noted that they did not disagree with the above analysis but believed the change would require re-exposure and recommended that the Board do not change the requirement. The Board agreed.

The Board previously agreed to include guidance on measuring the fair value of an intangible asset. It was noted that if the fair value of an intangible asset acquired in a business combination cannot be measured reliably, it is not recognised separately from goodwill. It has been suggested that:

• If the fair values of complementary assets cannot be individually determined, an entity should be required to recognise, rather than not precluded from recognising, those complimentary assets as a single asset, so as to ensure such assets are not inappropriately subsumed within goodwill.
• The requirement for the complimentary assets to have similar useful lives should be removed. As noted above, although some intangible assets are so closely related to other identifiable assets or liabilities that they are usually sold as a package, it would still be possible to measure reliably the fair value of that package. If the requirement for similar useful lives is not met, the fair value of that package would be subsumed in goodwill. Board members have suggested that more useful information is provided if the package is recognised separately from goodwill.

The staff proposed that the guidance be changed to:

• (a) an intangible asset acquired in a business combination might be separable, but only together with a related tangible or intangible asset. For example, a magazine's publishing title might not be able to be sold separately from a related subscriber database, or a trademark for natural spring water might relate to a particular spring and could not be sold separately from the spring. In such cases, the acquirer recognises the complementary assets as a single asset separately from goodwill if the individual fair values of the complementary assets are not reliably measurable.
• (b) similarly, the terms 'brand' and 'brand name' are often used as synonyms for trademarks and other marks. However, the former are general marketing terms that are typically used to refer to a group of complementary assets such as a trademark (or service mark) and its related trade name, formulas, recipes, and technological expertise. The acquirer recognises as a single asset a group of complementary intangible assets commonly referred to as a brand if the individual fair values of the complementary assets are not reliably measurable. If the individual fair values of the complementary assets are reliably measurable, an acquirer is not precluded from recognising them as a single asset, provided the assets that make up that the group have similar useful lives.

The Board agreed subject to some wording changes (for instance, "complementary" would be changed to "package").

Business Combinations

The Board agreed to include an amended objective paragraph.

The Board considered the proposed requirements when an entity uses provisional values. The staff recommended that this be amended to require restatement of prior reported numbers when the values are finalised. It was noted that the Basis for Conclusions should reflect that this is not an error.

The Board discussed the requirement to not recycle goodwill previously written off against equity. The Board agreed not to change the current proposal.

Impairment

The Board previously decided that if the initial allocation of goodwill acquired in a business combination could not be completed before the end of the annual period in which the business combination is effected, that initial allocation should be completed before the end of the first annual period beginning after the acquisition date. It was queried why this was different to the time required to finalise asset values.

The Board agreed not to change the requirement but to include an explanation as to the differing requirements in the Basis for Conclusions.

As part of the Board's recent improvements to IAS 16, Property, Plant and Equipment, IAS 36 was consequentially amended to require the future cash flows used in measuring an asset's value in use to exclude estimated future cash inflows or outflows expected to arise from future costs to add to, replace part of, or service the asset. However, IAS 36 was also consequentially amended to require estimates of future cash flows to include future costs necessary for the 'day-to-day servicing of the asset.

The staff recommended that, for consistency with IAS 16, IAS 36 continue to require estimates of future cash flows for measuring an asset's value in use to include future costs necessary for the day-to-day servicing of the asset.

However, the staff also recommended that, for consistency with IAS 16, the requirement for the estimates of future cash flows to exclude 'costs to service the asset' be amended to require the estimates to exclude 'costs for major inspections'.

The Board agreed.

The Board considered whether the description as to the level at which goodwill is tested for impairment, together with the additional guidance, properly convey the Board's intention on this issue.

The staff believed that the wording used properly conveyed the Board's intention on the level of the goodwill impairment test and recommended that no changes be made.

The Board agreed subject to some wording changes.