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Our company has recently purchased a patent right from a young inventor for $10,000/=. This patent is likely to enable us to add some extra feature to the product we manufacture; but this has to be test further to be confirmed. I just wonder how we should treat this patent purchase under IFRS. Is there specific procedure to follow?
in IAS 38 - Intangible Assets by Level 1 Member (1.6k points)

1 Answer

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Patent rights are generally treated as intangible assets. However IAS 38.21 requires an entity to recognise an intangible asset, whether purchased or self-created (at cost) if, and only if:

(a). it is probable that the future economic benefits that are attributable to the asset will flow to the entity; and (b) the cost of the asset can be measured reliably.

From the context your question it is clear that you need further tests to confirm whether it will be able to generate any future economic benefit. Therefore your patent does not meet the recognition criteria, If an intangible item does not meet both the definition of and the criteria for recognition as an intangible asset, IAS 38.68 requires the expenditure on this item to be recognized as an expense when it is incurred.
by Level 1 Member (1.3k points)