Deemed Cost
Definition
Deemed cost is a defined term in IFRS 1, First-time Adoption of International Financial Reporting Standards: an amount used as a surrogate for cost or depreciated cost at a given date. It gives a first-time adopter a practical starting measure for certain assets in its opening IFRS statement of financial position, in place of reconstructing their full cost history. IFRS 1 allows a first-time adopter to elect to use fair value, or a revaluation under its previous GAAP, as deemed cost for property, plant and equipment, for investment property, and for intangible assets that meet the recognition criteria in IAS 38 and the criteria for revaluation in that standard, including the existence of an active market. That last condition is decisive for intangibles. Few intangible assets trade in an active market, so the deemed cost route is rarely available for them, and an IFRS conversion does not put an internally built brand on the balance sheet at fair value. IFRS 1 also allows an event-driven fair value, measured at an event such as a privatisation or an IPO, to be used as deemed cost. Worked example: a UK company moving from FRS 102 to IFRS ahead of a Main Market listing holds a freehold property and a well-known brand it has built itself. It may elect to measure the property at fair value as its deemed cost at the date of transition. The brand has no active market, so the same election does not bring it onto the balance sheet, however much a buyer might pay for it. Contrast: deemed cost substitutes for the cost of an asset that IFRS recognises; it does not change which assets IFRS permits to be recognised, so the gap between the balance sheet and the value of internally built intangibles remains after conversion.
Complementary Terms
Concepts that frequently appear alongside Deemed Cost in practice.
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under IFRS 13, fair value is an exit price judged from the perspective of market participants rather than the reporting entity, and is ranked on a three-level hierarchy according to how observable its inputs are.
A first-time adopter is an entity that presents its first IFRS financial statements, as defined in IFRS 1, First-time Adoption of International Financial Reporting Standards. Its first IFRS financial statements are the first annual financial statements in which it adopts IFRS through an explicit and unreserved statement of compliance with IFRS.
The date of transition is a defined term in IFRS 1, First-time Adoption of International Financial Reporting Standards. It is the beginning of the earliest period for which an entity presents full comparative information under IFRS in its first IFRS financial statements.
The International Accounting Standard governing the recognition, measurement, and disclosure of intangible assets. IAS 38 requires that an intangible asset be identifiable, controlled by the entity, and expected to generate future economic benefits.
The opening IFRS statement of financial position is the balance sheet a first-time adopter prepares at its date of transition under IFRS 1, First-time Adoption of International Financial Reporting Standards. It is the starting point of the entity's IFRS record, and four things happen in preparing it.
The formal, auditable record of the intangible assets a business owns, with each asset individually named, described and classified against the Opagio 12 intangible value drivers. It is the output of Guided Asset Discovery, the first step of The Opagio Method, and it exists because the accounting standards leave most intangible value undocumented: IAS 38 and FRS 102 Section 18 prohibit recognising internally generated intangibles on the balance sheet, so brand, software, customer relationships, data and know-how built in-house appear nowhere in the filed accounts.
The profession and practice of recording, classifying, and reporting financial transactions to provide stakeholders with accurate information about an organisation's financial position. In the context of intangible assets, accountancy plays a critical role in determining how items such as goodwill, intellectual property, and customer relationships are recognised, measured, and disclosed under frameworks like IFRS and UK GAAP.
The unintended transfer of knowledge from one firm or sector to others, creating wider economic benefits that the original investor cannot fully capture. Knowledge spillovers are a defining characteristic of intangible investment and a key justification for public policy support of R&D, education, and innovation.
Further Reading
IAS 38 vs FRS 102 Section 18: Compared
How the two intangible asset standards differ on recognition and revaluation.
Read more →Related FAQ
How do you value intangible assets in a joint venture or partnership formation?
Intangible assets contributed to a joint venture are valued at fair value on the contribution date to determine each partner's equity stake, using the same income, market, and cost approaches as in a PPA.
Read full answer →How do you value order backlog as an intangible asset?
Order backlog is valued using an income approach by projecting the cash flows from confirmed but unfulfilled orders at the acquisition date, deducting fulfilment costs and contributory asset charges.
Read full answer →How do you value a non-compete agreement as an intangible asset?
Non-compete agreements are valued using the With-and-Without method, comparing projected cash flows with the agreement in place versus a scenario where the seller competes freely.
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