What is the IAS 38 revaluation model for intangible assets?
Short Answer
IAS 38 permits revaluation of intangible assets to fair value if an active market exists, but this is rarely used in practice because active markets for most intangible assets do not exist.
Full Explanation
Under IAS 38, companies have a policy choice for subsequent measurement of intangible assets: the cost model (cost less accumulated amortisation and impairment) or the revaluation model (fair value at revaluation date less subsequent amortisation and impairment). The revaluation model is permitted only when fair value can be determined by reference to an active market — defined as a market where items traded are homogeneous, willing buyers and sellers can normally be found, and prices are publicly available. In practice, active markets exist for very few intangible assets. Examples include: taxi medallions (in cities where they are traded), certain emission allowances and carbon credits, production quotas (milk, fishing), and some types of spectrum licences. For the vast majority of intangible assets — brands, customer relationships, technology, patents, software — no active market exists, making the revaluation model unavailable. This practical limitation means that nearly all companies use the cost model for intangible assets. When the revaluation model is applied, increases in value are recognised in other comprehensive income (revaluation surplus in equity), while decreases are recognised in profit or loss (unless they reverse a previous revaluation surplus). The revaluation must be kept sufficiently up to date that the carrying amount does not differ materially from fair value at the reporting date. The inability to revalue most intangible assets to fair value contributes to the persistent gap between book value and market value for intangible-intensive companies.
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