GAS 24 - Intangible Assets in Consolidated Financial Statements

• Adopted by the Accounting Standards Committee of Germany (ASCG) on 30 October 2015. Publication of the authoritative German version by the Federal Ministry of Justice and Consumer Protection under section 342(2) of the HGB on 23 February 2016.
• Revised paragraph 5 adopted by the Accounting Standards Committee of Germany (ASCG) on 22 September 2017. Publication of the authoritative German version by the Federal Ministry of Justice and Consumer Protection under section 342(2) of the HGB on 4 December 2017.

This Standard sets out detailed guidance on the requirements of German commercial law relating to the accounting for intangible assets and addresses the uncertainties existing in this connection. The aim is to ensure uniform application of the requirements and improve the information provided by consolidated financial statements.

This Standard applies to all parent entities that prepare consolidated financial statements in accordance with section 290 of the HGB, including in conjunction with 264a(1) of the HGB, and to parent entities that are required by section 11 of the PublG to prepare consolidated financial statements. Application of this Standard to annual financial statements, with the necessary modifications, is encouraged.

The question of whether a recognition requirement, option or prohibition applies to an intangible item depends on whether it represents an asset, whether it has to be classified as a non-current asset or a current asset, and whether it was internally generated or acquired.

An item is an asset if, according to prevailing opinion, it is individually recoverable. Individually recoverable means that the item is separable and abstractly recoverable from a third party.

Classification as a non-current or a current asset depends on the designated operating purpose of the intangible asset and whether it can be used in the long term. The assessment of the designated operating purpose must be based on the nature of the intangible asset and its customary usage within the industry (objective criteria) and on its intended use by the entity (subjective criterion). The intangible asset is used in the long term if it can be of benefit to the entity multiple times.

The question of whether an intangible asset has been acquired or was internally generated depends on whether the entity assumes the risk of its successful development or production. An intangible asset is therefore internally generated if the entity bears the risk of successful completion of its development or production.

Changes in intangible assets that are in their working condition may lead to a modification or a change in the nature of the asset. An intangible asset is modified if it is enhanced or if it is substantially improved beyond its original condition. A characteristic of a change in the nature of an intangible asset is that the changes are so extensive and fundamental that they change the assetʼs function and hence its intended purpose. As a consequence, a new intangible asset arises.

The expenditures incurred to modify an intangible asset must be capitalised if the cost of the underlying intangible asset was capitalised. In the case of a change in nature, a new intangible asset arises to which the general recognition requirements apply, regardless of the accounting for the intangible asset that it replaces. The principle of consistency must be applied.

Non-current and current acquired intangible assets must both be recognised, irrespective of whether any consideration was paid to acquire them. Internally generated non-current intangible assets may be recognised (recognition option) if they are in the development phase, it is highly probable that the planned intangible asset will arise, the development costs can be attributable reliably to the asset and there is no explicit prohibition on recognition (internally generated brands, mastheads, publishing titles, customer lists or similar non-current intangible assets within the meaning of section 248(2) sentence 2 of the HGB). It is highly probable that the planned intangible asset will arise if its completion is technically feasible, the entity intends to complete it and adequate resources are available to do so.

An intangible asset must be derecognised on disposal. If individual sub-rights are transferred to the licensee under a licensing arrangement such that it becomes the beneficial owner, those sub-rights must be derecognised.

The recognition principles must be applied consistently to similar transactions and circumstances. Sufficiently precise criteria must be defined that can be used to assess the similarity of transactions and circumstances.

Intangible assets are measured at cost at the acquisition date. If they are measured at fair value, the requirements of section 255(4) sentences 1 and 2 of the HGB must be applied.

All expenditures incurred to develop an intangible asset must be included in the cost of an intangible asset, starting on the date on which the recognition criteria are met. Development costs incurred during the reporting period that have not yet been recognised as expenses in financial statements may optionally be included in production cost.

Acquired in-process research and development projects that are classified as assets must be recognised as assets. Research expenditures for acquired in-process research projects that are continued at the entity’s own risk may not be capitalised. If the continuation of an acquired in-process research project at the entity’s own risk leads to the development of a new intangible asset (change in nature), the recognition option under section 248(2) sentence 1 of the HGB applies. If this option is exercised, the carrying amount of the acquired in-process research project is partially or fully included in the production cost of the new intangible asset.

Finite-lived non-current intangible assets must be amortised over the expected entity-specific useful life. If the entity-specific useful life of internally generated non-current intangible assets cannot be estimated reliably in exceptional cases, they are amortised over a period of ten years. Intangible assets that can be used indefinitely are not amortised. If maintenance measures are the only reason why brands, mastheads, publishing titles, customer lists and similar non-current intangible assets within the meaning of section 248(2) sentence 2 of the HGB can be used indefinitely, those assets do not have an indefinite useful life and must be amortised.

In accordance with section 266(2) of the HGB, internally generated non-current intangible assets are presented in heading A.I.1. ‘Internally generated industrial rights and similar rights and assets’ and purchased non-current intangible assets are presented in heading A.I.2. ‘Purchased concessions, industrial and similar rights and assets, and licences in such rights and assets’. Non-current intangible assets that were acquired without consideration may either be presented in a separate balance sheet heading or in balance sheet heading A.I.2. ‘Purchased concessions, industrial and similar rights and assets, and licences in such rights and assets’.

Entities are encouraged to present intangible assets in the development phase as an ‘of which’ sub-item under heading A.I.1. ‘Internally generated industrial rights and similar rights and assets’ or in a separate balance sheet heading within section A.I. ‘Intangible assets’.

In addition to disclosures on the accounting policies applied, the statement of changes in intangible assets must also be disclosed in the notes. The expenditures incurred due to the consumption of goods or the use of services for research and development activities in the financial year must be included in the aggregate amount of research and development costs in the financial year to be disclosed if the recognition option under section 248(2) sentence 1 of the HGB is exercised.