Page 22 - CIMA MCS Workbook February 2019 - Day 2 Suggested Solutions

CIMA FEBRUARY 2019 – MANAGEMENT CASE STUDY

TASK 3 – INTANGIBLE ASSETS
From: Financial Manager
To: Marketing Director
Date: Today

Intangible assets
A brand is an intangible asset, which is defined by IAS 38 Intangible assets (IAS 38) as an
identifiable non‐monetary asset without physical substance. IAS 38 then goes on to state that an
intangible asset can only be recognised in the financial statements when all of the following
criteria apply:

 it is identifiable
 it is controlled by the entity
 it will generate future economic benefits for the entity, and
 the cost of the asset can be measured reliably.

Usually, only purchased brands will be capable of meeting the recognition criteria. If a brand has
been purchased, there will be a reliable quantification of the cost of purchase, it will be subject to
legal protection (preventing use by others) and could be used in the business, or indeed sold to a
third party to generate future economic benefits.

In the case of an internally generated brand, such as the Crowncare ‘brand’ and reputation, this
has been built up over many years. It is not possible to reliably estimate the cost of generating or
creating that asset. IAS 38 specifically prohibits recognition of internally generated brands.

In the case of the Crowncare molar logo, it may be possible to register this as a trademark, and
therefore recognise it as an intangible asset. If this was possible, the cost of obtaining registration
of the trademark would be capitalised and accounted for as an intangible asset. However,
whether the molar logo is sufficiently distinctive and unique to Crowncare (as opposed to any
other provider of dental services) would need to be carefully considered by an appropriate
professional expert (such as a trade mark expert or solicitor), although it seems unlikely that the
logo would meet the criteria to be classified as an intangible asset. Given that it was designed as
part of a university course, it is unlikely to have any associated cost to the business.

Cost of recruitment and training
The costs of recruitment and training are considered by IAS 38.

IAS 38 prohibits recognition of recruitment and training costs as an asset. Even if the costs of
recruitment and selection can be reliably measured (e.g. from payroll records and time sheets)
Crowncare does not own its employees in the same way that an entity owns an asset, which
includes the right to sell or scrap an asset. This will also apply to the cost of any psychometric
testing incurred as part of the recruitment and selection process.

The costs of professional training and development, whether delivered by an external provider, or
delivered in‐house by a member of staff, cannot be capitalised and recognised as an asset. Even
though Crowncare may expect that better trained employees provide better services to patients,
which means that patients remain registered with the practice longer, or e.g. request additional

112 KAPLAN PUBLISHING