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IAS 38 — Amortisation method

Date recorded:

The IFRIC received two requests for guidance on the meaning of 'consumption of economic benefits' of an intangible asset with a finite useful life. The staff explained that the requests are similar to questions raised in March 2008 and can be rephrased as whether the pattern of consumption of economic benefits should reflect values (for example, revenue) or only quantities (units).

One member disagreed with the staff's recommendation not to take the matter onto the agenda as one of the requests submitted to IFRIC listed as an example an intangible asset recognised in accordance with IFRIC 12. The real question that needs to be answered is, in accounting for a licence to operate a tangible asset, whether one should look through the licence to the underlying tangible asset and amortise the intangible based on the consumption of the tangible. Another IFRIC member agreed that there is divergence in practice on this issue and that IFRIC should add the item to its agenda, as amortisation depends on the interpretation of economic benefits, which in some cases seem to indicate revenue streams.

Another member concurred, pointing out that under IAS 17 the economic benefits of an operating lease are defined in terms of revenue, and that amortisation based on the revenue stream of an intangible would appear to be consistent with IAS 17.

Another IFRIC member noted that IAS 38 seems to be clear that an intangible asset is amortised based on the expected usage, rather than revenue. Because of these differences, this member agreed with the staff's proposal not to add the item to the agenda.

A vote was taken, and only five members voted to add the issue to IFRIC's agenda. The discussion then turned to the proposed wording of the agenda rejection notice and whether the IFRIC should make the bold statement that amortisation can only be based on the straight-line basis or on the units-of-production method and not on revenue streams (or values). One member mentioned that in the US they have concluded that no method can be ruled out completely as the facts and circumstances differ between arrangements.

After discussion, IFRIC agreed to use the wording of IAS 38 to explain the basis for amortisation of intangible assets. The agenda decision will also make clear that preparers must apply judgement when choosing an amortisation method and that IAS 1 requires disclosure of the significant judgements made in the preparation of the financial statements.

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