Introduction
Today, in the highly competitive business world, many times the business’s intangible assets are worth more than its tangible assets. Trademarks, brand reputation, software and other forms of intellectual property can be instrumental to a company’s financial stability and success in the long run. The Thai Accounting Standard tas 38 is an important standard that companies need to consider the principle of recognition, measurement, and presentation of intangible assets in the financial statement. Knowing how to utilize tas 38 can help management with the accuracy of reporting, the improved quality of decision making and compliance with accounting regulations.
What Does TAS 38 Intangible Assets Mean?
During 1999 a new accounting standard was introduced, tas 38, that defines intangible asset as an identifiable non-monetary asset without physical substance. They are intangible assets because you cannot hold or feel these assets; however, they can have future economic value. Common examples include:
- Patents and copyrights**
- Trademarks and brand names**
- Customer lists and relationships**
- Software and digital platforms**
- Franchising rights or licenses**
For a thing to be an intangible asset according to tas 38, it must be identificable, controlled by the company, and able to create future economic advantages. Which is to say not every dollar spent on advertising, training, or research is automatically considered an intangible asset, unless these requirements are satisfied.
Criteria for Recognition in Case of TAS 38
Recognition of intangible assets is one of the difficult problems. According to TAS 38 businesses need to fulfill the following two criteria to recognize an intangible asset:
- Future Economic Benefits: The entity shall establish that the asset is going to generate the benefits, increased revenue, cost saving or improving the operations in the future.
- Reliable measurement: The cost of a non-current asset could be measured in a reliable manner, this could be done using all considerations involved in the purchase of the asset or the production costs of the asset.
For instance, if a firm develops a proprietary software application for its internal use, it can capitalise the development costs, but it cannot do so for the research phase expenditure. TAS 38 distinguishes research from development, and permits capitalization of only development expenditures which satisfy recognition criteria.
Measurement of Intangible Assets at the Date of Recognition
When an intangible asset meets the criteria for recognition, it must be measured initially at cost. This encompasses anything that you pay for the asset: the purchase price, customs duties, non-refundable sales taxes, handling and other directly attributable costs of preparing the asset for use.
For internally created intangible assets (such as software or patents), measurement also considers direct costs such as the salaries of development personnel, testing (eg, burning-in) costs, and materials used. Overhead or general administrative expenses are not included, however.
Post Measurement in Accordance with TAS 38
On initial recognition, tas 38 provides two models for subsequent measurement:
- Cost Model: IAs are measured at cost less accumulated amortization and accumulated impairment losses.
- Revaluation Model: The asset is carried at a revalued amount, being fair value at the date of revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. But such a method may be applicable only if there is a market for this immaterial asset, which is an exceptional situation in practice.
There’s a reason for that – because it can be challenging to establish what the “fair value” of an intangible asset is in the absence of an active market.
Amortization and Impairment
TAS 38 obliges companies to ascertain whether an identifiable intangible asset has a finite or indefinite useful life:
- Limited life: Cost is written off over its useful life, which is typically on a straight-line basis. So a software licence of five years would be amortized over five years.
- Infinite life: Some assets, like trademarks, will never have an end in sight. These are not amortised with an annual impairment review.
Regular impairment testing ensures that assets are not carried at above recoverable amounts, resulting in financial statements that are a faithful representation.
Practical Difficulties in Implementing TAS 38
Even though TAS 38 specifies explicit guidelines, companies encounter practical issues such as:
- Differentiating research from development expenses**
- Useful life estimates and amortization schedules**
- Evaluating impairment when market value is unknown*
- Internal brands and customer relationships are valuable**
Companies must have rigorous internal controls and documentation to support recognition and measurement, in particular when they interact with regulators, auditors or investors.
Successful Compliance Best Practices
The best practices of how businesses can apply tas 38, according to the findings presented, are the below.
- Keep careful records** of all costs and expected economic benefits as they develop.
- Facilitate with audit** to ensure recognition criteria has been met.
- Adopt a presumptive standard** for estimating useful life and impairment Modeling those estimates on a conservative and presumptive basis is very important as well.
- Evaluate intangible assets on a regular basis** to ensure they are recorded for the amount needed to maintain them, not according to your ability to carry them or to finally realize them.
With the adoption of these practices, companies would enhance and ensure a better transparent environment with respect to tas 38 issues.
Conclusion
Non-material assets are central value creators in today’s economy, and accurately booking them in line with tas 38 is not only crucial in terms of legal conformity, but for credibleness and pragmatic business planning. Through that solid understanding of recognition criteria, the application of measurement models, and keeping a tight lasso on amortization and impairment considerations, companies can present accurate financials and reputation can be protected. In the end, proper application of tas 38 helps businesses comply with regulations, as well as establish investor confidence in general and in terms of the actual value of its intangible assets.