Standard No. 04
INTANGIBLE FIXED ASSETS
(Issued and promulged in pursuance of the Minister of Finance
Decision No. 149/2001/QD-BTC dated December 31, 2001)
01. This standard aims to prescribe and guide the principles and methods of accounting intangible fixed assets, including: criteria of intangible fixed assets, time of recognition and determination of the initial value, costs incurred after initial recognition, determination of the value after initial recognition, depreciation, liquidation of intangible fixed assets and some other regulations serving as basis for recording accounting books and making financial statements.
02. This standard applies to the accounting of intangible fixed assets, except where other standards permit the application of other accounting principles and methods to intangible fixed assets.
03. A number of intangible fixed assets may be contained within or on physical objects like compact discs (in cases where computer software is recorded in compact discs), legal documents (in cases of licenses or invention patents). In order to determine whether or not an asset containing both intangible and tangible elements is accounted according to the regulations of the tangible fixed asset standard or intangible fixed asset standard, the enterprises must base themselves on the determination of which elements being important. For example, if computer software is an integral part of the hardware of a computer, without it the computer cannot operate, such software is a part of the computer and thus it is considered a part of tangible fixed asset. In cases where software is a part detachable from the related hardware, it is an intangible fixed asset.
04. This standard prescribes the expenses related to the advertisement, personnel training, enterprise establishment, research and development. Research and development activities oriented at the knowledge development may create an asset in a physical form (i.e. models) but the physical element only plays a secondary role as compared with the intangible component being knowledge embedded in such asset.
05. Once the financial-leasing intangible fixed assets have been initially recognized, the lessees must account them in the finance-leasing contracts according to this standard. The rights under licensing contracts to films, video programs, plays, manuscripts, patents and copyright shall fall within the scope of this standard.
06. For the purpose of this standard, the terms used herein are construed as follows:
Asset is a resource which is:
a/ controllable by the enterprise; and
b/ expected to yield future economic benefits for the enterprise.
Intangible fixed assets mean assets which have no physical form but the value of which can be determined and which are held and used by the enterprises in their production, business, service provision or leased to other subjects in conformity with the recognition criteria of intangible fixed assets.
Research means a planned initial survey activity carried out to obtain new scientific or technical understanding and knowledge.
Development means an activity of applying research results or scientific knowledge to a plan or design so as to make products of a new kind or to substantially renovate materials, tools, products, processes, systems or new services before their commercial production or use.
Historical cost means all costs incurred by the enterprises to acquire intangible fixed assets as of the time of putting these assets into use as expected.
Depreciation means the systematic allocation of the depreciable value of intangible asset throughout their useful life.
Depreciable value means the historical cost of an intangible asset recorded in the financial statement minus (-) the estimated liquidation value of the asset.
Useful life means the duration in which intangible fixed assets promote their effects on production and business, calculated by:
a/ The time for which the enterprise expects to use the intangible asset; or
b/ The quantity of products, or similar calculating units which the enterprise expects to obtain from the use of the assets.
Liquidation value means the value estimated to be acquired upon the expiry of the useful life of an asset, after subtracting (-) the estimated liquidation cost.
Residual value means the historical value of an intangible fixed asset after subtracting (-) the accumulated depreciation of the asset.
Reasonable value means the value of assets which may be exchanged between the knowledgeable parties in the par value exchange.
Operating market means a market which meets simultaneously all the following three (3) conditions:
a/ Products sold on the market are homogenous;
b/ Purchaser and seller may find each other at any time;
c/ Prices are made public.
INTANGIBLE FIXED ASSETS
07. The enterprises often make investment in order to acquire intangible resources such as the right to use land for a definite term, computer software, patent, copyright, aquatic resource exploitation permit, export quota, import quota, right concession permit, business relations with customers or suppliers, customers’ loyalty, market shares, the marketing right…
08. In order to determine whether or not intangible resources specified in paragraph 07 meet the definition of an intangible fixed asset, the following factors shall be considered: Identifiability, resource controllability and certainty of future economic benefits. If an intangible resource fails to satisfy the intangible fixed asset definition, the costs incurred in the formation of such intangible resource must be recognized as production and business expenses in the period or as pre-paid expenses. Particularly for those intangible resources the enterprises have acquired through enterprise merger of re-purchase character, they shall be recognized as goodwill on the date of arising of the purchase operation (under the regulations in paragraph 46).
09. Intangible fixed assets must be separately identifiable so that they can be clearly distinguished from goodwill. Goodwill arising from the enterprise merger of re-purchase character is shown with a payment made by the asset purchaser in order so as to possibly obtain future economic benefits.
10. An intangible fixed asset is considered identifiable when the enterprises may lease, sell or exchange it or acquire concrete future economic benefits therefrom. Those assets which can only generate future economic benefits when combined with other assets shall be still seen as separately identifiable if the enterprises can determine with certainty future economic benefits to be brought about by such assets.
11. An enterprise is in control of an asset if it has the right to acquire future economic benefits yielded by such asset and, at the same time, is able to limit other subjects’ access to these benefits. The enterprise’s controllability of future economic benefits from intangible fixed assets, often derives from legal rights.
12. Market knowledge and expertise may bring about future economic benefits. The enterprise may control these benefits if they have legal right, for example: Copyright, aquatic resource exploitation permit.
13. If an enterprise has a contingent of skilled employees and through training, it may ascertain that improvement of their employees’ knowledge would bring about future economic benefits, but it is unable to control these economic benefits, therefore the enterprise cannot recognize such as an intangible fixed asset. Leadership talent and professional techniques shall not be recognized as intangible fixed assets except where these assets are secured with legal rights to use them and acquire future economic benefits and, at the same time, meet all the requirements of the intangible fixed asset definition and recognition criteria.
14. For enterprises which have customers’ name lists or market shares, if they have neither legal rights nor other measures to protect or control economic benefits from the relations with customers and their loyalty, they must not recognize these as intangible fixed assets.
Future economic benefits
15. Future economic benefits yielded by intangible fixed assets for the enterprises may include: Turnover increase, saved costs, or other benefits originating from the use of intangible fixed assets.
CONTENTS OF THE STANDARD
RECOGNITION AND DETERMINATION OF INITIAL VALUE
16. To be recognized as intangible fixed asset, an intangible asset must simultaneously satisfy:
- The definition of an intangible fixed asset; and
- Four (4) recognition criteria below:
+ The certainty to acquire future economic benefits brought about by the asset;
+ The asset’s historical cost must be determined in a reliable way;
+ The useful life is estimated to last for over one year;
+ All value criteria prescribed by current regulations are met.
17. The enterprises must determine the degree of certainty to acquire future economic benefits through using reasonable and grounded assumptions on the economic conditions which will exist throughout the useful life of the assets.
18. Intangible fixed assets must have their initial value determined according to their historical cost.
DETERMINATION OF HISTORICAL COST OF INTANGIBLE FIXED ASSETS IN EACH CASE
Purchase of separate intangible fixed assets
19. The historical cost of a separately-purchased intangible fixed asset consists of the buying price (minus (-) trade discounts or price reductions), taxes (excluding reimbursed tax amounts) and expenses directly related to the putting of the asset into use as planned.
20. Where the land use right is purchased together with houses and architectural objects affixed on the land, its value must be separately determined and recognized as intangible fixed asset.
21. Where a procured intangible asset is paid by deferred payment mode, its historical cost shall be shown at the purchasing price which should have been promptly paid at the time of purchase. The difference between the total amount payable and the promptly-paid purchase price shall be accounted into the production and business expense according to the payment period, except where such difference is included in the historical cost of the intangible asset (capitalization) under the regulations of the accounting standard “Costs of borrowing.”
22. If an intangible fixed asset is formed from the exchange involving payment accompanied with vouchers related to the capital ownership of the establishment, its historical cost is the reasonable value of vouchers issued in relation to capital ownership.
Purchase of intangible fixed assets through enterprise merger
23. The historical cost of an intangible fixed asset formed from the process of enterprise merger of re-purchase character is the reasonable value of such asset on the date of purchase (the date of enterprise merger).
24. The enterprises must determine the historical cost of intangible fixed assets in a reliable way for separate recognition of these assets.
The reasonable value may be:
- The price posted up on the operating market;
- The price of the operation of trading in similar intangible fixed assets.
25. If the operating market for assets does not exist, the historical costs of intangible fixed assets shall be equal to the amounts the enterprises should have paid on the date of purchase of the fixed assets under the condition that such operation is carried out objectively on the basis of available reliable information. In this case, the enterprises should consider carefully the results of these operations in correlation with similar assets.
26. Upon enterprise merger, intangible fixed assets shall be recognized as follows:
a/ The purchaser shall recognize assets as intangible fixed assets if they meet the intangible fixed asset definition and recognition criteria specified in paragraphs 16 and 17, even if such intangible fixed assets were not recognized in the financial statements of the asset seller;
b/ If an intangible asset is purchased through enterprise merger of re-purchase character but its historical cost cannot be determined reliably, the asset shall not be recognized as a separate intangible fixed asset but accounted as goodwill (under the regulations in paragraph 46).
27. Where no operating market exists for intangible fixed assets purchased through enterprise merger of re-purchase character, the historical cost of intangible fixed assets shall be the value at which they do not create negative-value goodwill which arises on the date of enterprise merger.
Intangible fixed assets being the right to use land for a definite term
28. The historical cost of an intangible fixed asset is the right to use land for a definite term when the land is allocated or the payment made when receiving the land use right lawfully transferred from other persons, or the land use right value contributed to joint-venture capital.
29. Where the land use right is transferred together with the purchase of houses and/or architectural objects on the land, the value of houses and/or architectural objects must be determined separately and recognized as tangible fixed assets.
Intangible fixed assets allocated by the state or donated or presented
30. The historical cost of an intangible fixed asset which is allocated by the State, donated or presented, is determined according to the initial reasonable value plus (+) the expenses directly related to the putting of the assets into use as planned.
Intangible fixed assets purchased in the form of exchange
31. The historical cost of an intangible fixed asset purchased in the form of exchange for a dissimilar intangible or another asset is determined according to the reasonable value of the received intangible fixed asset or equal to the reasonable value of the exchanged asset, after adjusting the cash amounts or cash equivalents additionally received or paid.
32. The historical cost of an intangible fixed asset purchased in the form of exchange for a similar intangible fixed one, or possibly formed through its sale in exchange for the right to own a similar assets (similar asset are those with similar utilities, in the same business field and of equivalent value). In both cases, no profit or loss is recognized in the exchange process. The historical cost of the received intangible fixed asset is equal to the residual value of the exchanged intangible fixed asset.
GOODWILL CREATED FROM WITHIN THE ENTERPRISES
33. Goodwill created from within the enterprises shall not be recognized as assets.
34. Costs incurred to generate future economic benefits but not form intangible fixed assets because they fail to satisfy the definition and recognition criteria in this standard but to create goodwill within the enterprises. The goodwill created within the enterprises shall not be recognized as assets since they are not identifiable resources, nor appraisable in a reliable way nor controllable by the enterprises.
35. The difference between the market value of an enterprise and the value of its net asset value recorded on the financial statement, which is determined at a certain point of time, shall not be recognized as an intangible fixed asset controlled by the enterprise.
INTANGIBLE FIXED ASSETS CREATED FROM WITHIN THE ENTERPRISES
36. In order to assess whether or not an intangible asset created from within an enterprise on the date of arising of the operation meets the intangible fixed asset definition and recognition criteria, the enterprise must divide the asset-forming process into:
a/ The research stage; and
b/ The development stage.
37. If the enterprise cannot distinguish the research stage from the development stage of an internal intangible asset-creating project, it must account all incurred costs related to such project as expenses so as to determine the business results in the period.
38. All costs incurred in the research stage shall not be recognized as intangible fixed assets but as production and business expenses in the period.
39. Examples of activities in the research stage:
a/ Activities of researching into and developing new knowledge, and activities of exploring, evaluating and selecting final options;
b/ The application of research results, or other knowledge;
c/ The exploration of alternative methods for materials, tools, products, processes, services;
d/ Formulas, designs, evaluation and final selection of alternative methods for materials, tools, products, processes, systems, services, new or further improved.
40. Intangible assets created in the development stage shall be recognized as intangible fixed assets if they meet all the following seven (7) conditions:
a/ Their technical feasibility assures the finishing and putting of the intangible assets into use as planned or for sale;
b/ The enterprises intend to finish the intangible assets for use or sale;
c/ The enterprises are capable of using or selling the intangible assets;
d/ The intangible assets must generate future economic benefits;
e/ There are adequate technical, financial and other resources for completion of the development stage, sale or use of such intangible assets;
f/ Being capable of determining with certainty all costs in the development stage for creating the intangible assets;
g/ They are estimated to meet all criteria for use duration and value prescribed for intangible fixed assets.
41. Examples of development activities:
a/ Designing, constructing and experimenting prototypes or models before they are put into production or use;
b/ Designing tools, molds, jigs and swages related to new technologies;
c/ Designing, constructing and operating economically infeasible trial workshops for commercial production operations;
d/ Designing, developing and manufacturing on a trial basis substitute materials, tools, products, processes, systems and services, new or improved.
42. Trademarks, distribution right, customers’ name list and similar items formed from within the enterprises shall not be recognized as intangible fixed assets.
Historical costs of intangible fixed assets created from within the enterprises
43. Intangible fixed assets created from within the enterprises shall be initially appraised according to their historical costs consisting of all costs incurred from the time the intangible assets satisfy the intangible fixed asset definition and recognition criteria prescribed in paragraphs 16, 17 and 40 until they are put into use. The costs incurred before this point of time must be included in production and business expenses in the period.
44. The historical cost of an intangible fixed asset created from within an enterprise consists of all directly related expenses or allocated according to rational and consistent norms at all stages from designing, construction, trial production to preparation for putting the asset into use as planned.
The historical cost of an intangible fixed asset created from within the enterprises consists of:
a/ Costs of raw materials, materials or services already used in the creation of the intangible fixed assets;
b/ Salaries, wages and other expenses related to the hiring of employees personally involved in the creation of such asset;
c/ Other expenses directly related to the creation of the asset, such as expenses for registration of legal rights, depreciation of patent and license used in the creation of such asset;
d/ General production costs allocated into the asset according to rational and consistent norms (for example: allocation of the depreciation of workshops, machinery, equipment, insurance premiums, and rents of workshops and equipment).
45. The following costs must not be included in the historical cost of intangible fixed assets created from within the enterprises:
a/ Sale cost, enterprise management cost and general production costs not directly related to the putting of the assets into use;
b/ Unreasonable expenses such as those for wasted raw materials and materials, labor and other expenses in excess of the normal level;
c/ Cost of training of employees to operate the assets.
RECOGNITION OF COSTS
46. Those costs related to intangible assets must be recognized as production and business expenses in the period or pre-paid expenses, except the following cases:
a/ Costs of creating part of the historical cost of an intangible fixed asset satisfying the intangible fixed asset definition and recognition criteria (prescribed from paragraph 16 to 44).
b/ Intangible assets formed from the process of enterprise merger of re-purchase character, which fail to satisfy the intangible fixed asset definition and recognition criteria, these costs (included in the asset re-purchase expenses) shall form part of the goodwill (including cases where goodwill bear a negative value) on the date of decision of enterprise merger.
47. Those costs incurred to yield future economic benefits for the enterprises but not recognized as intangible fixed assets, shall be recognized as production and business expenses in the period, excluding those costs specified in paragraph 48.
48. Those costs incurred to generate future economic benefits for the enterprises, including enterprise establishment cost, personnel-training cost and advertising cost incurred before the newly-set up enterprises start to operate, costs for the research stage, relocation cost, shall be recognized as production and business expenses in the period or gradually allocated into production and business expenses in the maximum period of three years.
49. Costs related to intangible assets, which have been recognized by the enterprises as costs of determining the business operation results in the previous period, shall not be re-recognized as part of the historical cost of intangible fixed assets.
COST INCURRED AFTER INITIAL RECOGNITION
50. Costs related to intangible fixed assets, which are incurred after initial recognition, must be recognized as production and business expenses in the period; if they meet simultaneously the two following conditions, they shall be included into the historical costs of intangible fixed assets:
a/ These costs can help intangible fixed assets generate more future economic benefits than the original operation evaluation;
b/ These costs are appraised in a certain way and associated with a specific intangible asset.
51. Those costs which are related to intangible fixed assets and incurred after initial recognition shall be recognized as production and business expenses in the period, except when these costs are associated with a specific intangible fixed asset and help increase economic benefits from such asset.
52. Those costs which are incurred after the initial recognition and related to trademarks, distribution right, customers’ name list and items of similar nature (including those purchased from outside or created from within the enterprise) shall be always recognized as production and business expenses in the period.
DETERMINATION OF VALUE AFTER INITIAL RECOGNITION
53. After initial recognition, in their use process, the intangible fixed assets shall be determined according to their historical cost, accumulated depreciation and residual value.
54. The depreciable value of an intangible fixed asset must be systematically allocated throughout its estimated reasonable useful life. The depreciation period of an intangible asset shall not exceed 20 years. Depreciation shall start from the time the intangible fixed asset is put into use.
55. When determining the useful life of an intangible fixed asset as basis for calculating depreciation, the following factors must be taken into account:
a/ The estimated usage of the asset;
b/ The life circle of products and general information on the estimates related to the useful life of identical types of fixed assets which are used under similar conditions.
c/ Technical or technological obsoleteness;
d/ Stability of the sector using this asset and the change in the market demand for products or the provision of services brought about by such asset;
e/ Projected activities of existing or potential competitors;
f/ Necessary maintenance cost;
g/ The asset control period, legal constraints and other constraints in the process of using the asset;
h/ The dependence of the useful life of the intangible fixed asset on other assets in the enterprise.
56. For computer software and other intangible fixed assets which may become technically obsolete rapidly, their useful life is often shorter.
57. In some cases, the useful life of intangible fixed assets may exceed 20 years upon reliable evidences but must be specified. In this case, the enterprises must:
a/ Depreciate the intangible fixed assets according to their most accurately-estimated useful life;
b/ Justify the reasons for the estimation of the assets’ useful life in the financial statements.
58. If the control of future economic benefits from intangible fixed assets is made possible by virtue of legal rights granted within a given period, the useful life of the intangible fixed assets shall not exceed the effective time of the legal rights, except when such rights are extended.
59. Economic and legal factors affecting the useful life of intangible fixed assets include: (1) Economic factors decisive to the period in which future economic benefits are obtained; (2) Legal factors restricting the period during which the enterprise controls these economic benefits. The useful life is a period shorter than the above-said periods.
60. The depreciation methods applicable to intangible fixed assets must reflect the mode of recovering economic benefits from such intangible fixed assets of the enterprises. The depreciation method used for each intangible fixed asset shall apply uniformly in many periods and may be changed when there appears a significant change in the enterprise’s mode of recovering economic benefits. The depreciation cost for each period must be recognized as a production and business expense, unless it is included in the value of other assets.
61. There are three (3) depreciation methods for intangible fixed assets, including:
Straight-line depreciation method;
Declining-balance depreciation method;
Units-of-output depreciation method.
- By to the straight-line depreciation method, the annual depreciated amount is kept unchanged throughout the intangible fixed asset’s useful life.
- According to the declining-balance method, the annual depreciated amount gradually declines throughout the asset’s useful life.
- The units-of-output method is based on the estimated total quantity of products the asset will create.
62. An intangible fixed asset has a liquidation value when:
a/ There is a third party agreeing to re-purchase the asset at the end of its useful life; or
b/ There is an operating market at the end of the asset’s useful life and the liquidation value may be identified through the market price.
When none of the above-mentioned two conditions exists, the liquidation value of an intangible fixed asset is determined as zero (0).
63. The depreciable value is determined as equal to the historical cost minus (-) the estimated liquidation value of the asset.
64. The liquidation value is estimated when an intangible fixed asset is created and put into use on the basis of the prevailing selling price at the end of the useful life of a similar asset which has been operating under similar conditions. The estimated liquidation value shall not rise when there appear changes in price or value.
RECONSIDERATION OF THE DEPRECIATION PERIOD AND DEPRECIATION METHOD
65. The period and methods of depreciation of intangible fixed assets must be reconsidered at least at the end of every fiscal year. If the estimated useful life of an asset sees a big difference from the previous estimates, the depreciation period must be modified accordingly. The method of depreciation of intangible fixed assets may be changed when there emerges a significant change in the way of estimating the economic benefits recoverable for the enterprises. In this case, the depreciation cost in the current year and subsequent years must be adjusted, which must be justified in the financial statements.
66. Throughout the time of using intangible fixed assets when it is deemed that the estimated useful life of an asset is no longer suitable, the depreciation period must be adjusted. For example, the useful life may prolong as a result of more investment in raising the asset’s capability as compared with the original operating capability appraisal.
67. Throughout the useful life of intangible fixed assets, the way of estimating future economic benefits which the enterprises expect to obtain may be changed, and so the method of depreciation need to be changed accordingly. For example, the declining balance depreciation method proves more suitable than the straight-line depreciation method.
SALE AND LIQUIDATION OF INTANGIBLE FIXED ASSETS
68. Intangible fixed assets shall be recorded as decrease when they are liquidated, sold or deemed to generate no economic benefits in subsequent use.
69. Profits or losses arising from the liquidation or sale of intangible fixed assets shall be the difference between incomes and liquidation or sale costs plus (+) the residual value of the intangible assets. Such profits or losses shall be recognized as an income or a cost on the in the business result report in the period.
PRESENTATION OF FINANCIAL STATEMENTS
70. In financial statements, the enterprises must present the following information on each type of intangible fixed assets created from within the enterprises and each type of intangible fixed assets formed from other sources:
a/ Method of determining the historical cost of the intangible fixed asset;
b/ Depreciation method; the useful life or depreciation rate;
c/ The historical cost; accumulated depreciation and residual value at the beginning of the year and at the end of the period;
d/ The written explanation of the financial statement (section intangible fixed assets) must cover the following information:
- Increase in the historical cost of intangible fixed assets, of which the value of intangible fixed assets increases from activities in the development stage or enterprise merger;
- Decrease in the historical cost of intangible fixed assets;
- Depreciation in the period, any increase, decrease and accumulated amount at the end of the period;
- Reasons for an intangible fixed asset to be depreciated in over 20 years (when giving these reasons, the enterprises must point out the important factors in the determination of the useful life of the asset).
- The historical cost, accumulated depreciation, residual value and remaining depreciation duration of each intangible fixed asset holding an important position or representing a large proportion in the enterprises’ fixed assets;
- Reasonable value of the intangible fixed assets allocated by the State (as stipulated in paragraph 30), explicitly stating the reasonable value upon initial recognition; accumulated depreciation value; residual value of the fixed assets;
- Residual value of intangible fixed assets already mortgaged for payable debts;
- Commitments to future sale and purchase of intangible fixed assets of big value ;
- Residual value of intangible fixed assets temporarily not in use;
- Historical cost of fully-depreciated intangible fixed assets which are still in use;
- Residual value of intangible fixed assets awaiting liquidation;
- Justification of the costs incurred in the research and development stages, which have been recognized as production and business expenses in the period;
- Other changes concerning intangible fixed assets.
71. Accounting of intangible fixed assets which are classified by groups of fixed assets of the same nature and use purposes in the enterprises’ operations, including:
a/ The right to use land for a definite term;
c/ Distribution rights;
d/ Computer software;
e/ Licenses and right concession permits;
f/ Copyright, patents;
g/ Preparation formulas and methods, models, designs and prototypes;
h/ Intangible fixed assets being developed.