a. Memo to Financial Controller on Intangible Assets Recognition

To: Financial Controller
From: [Your Name], Partly Qualified Accountant
Date: [Insert Date]
Subject: Recognition and Accounting Treatment of Internally Developed Intangible Assets

i. Recognition of Internally Developed Intangible Assets:
Internally developed intangible assets should be recognized if they meet the definition and recognition criteria as stipulated in IAS 38. The following conditions must be fulfilled:

1. Control: The company must have control over the intangible asset, meaning it has the power to obtain future economic benefits from the asset and restrict others from using it.
2. Identifiability: The asset must be separable, meaning it can be sold, transferred, or licensed, or it arises from contractual or other legal rights.
3. Future Economic Benefits: The entity must expect to derive future economic benefits from the asset, such as revenue from the sale of products or services, or cost savings.
4. Reliable Measurement: The cost of the asset must be measured reliably.

Initial Measurement:
Internally developed intangible assets should be initially recognized at cost, which includes all expenditures directly attributable to preparing the asset for its intended use. This may include costs related to development, materials, and labor.

Subsequent Measurement:
After initial recognition, the entity has a choice between the cost model and the revaluation model:

• Cost Model: The asset is carried at cost less any accumulated amortization and any accumulated impairment losses.
• Revaluation Model: If an intangible asset is revalued, it must be done so with sufficient regularity, and the revalued amount becomes its carrying value.

ii. Criteria for Revaluation of Intangible Assets:
Revaluation of intangible assets can only occur if there is an active market for the asset. The criteria include:

1. Market Existence: There must be an active market for the intangible asset, which implies that prices are publicly available, and transactions are conducted regularly.
2. Identical Items: The items traded must be identical in nature, allowing for reliable measurement of fair value.
3. Regularity: The revaluation must occur regularly to ensure the carrying amount does not differ materially from the fair value at the end of the reporting period.

Conclusion:
Recognition and accounting for internally developed intangible assets require careful consideration of the criteria set forth in IAS 38. Adhering to these principles ensures accurate financial reporting and compliance with accounting standards.