Give value to intangibles | Human Soul

7 July 2020

Today, the issue of intangibles has taken on an enormous weight in companies, since by knowing how to exploit their intangibles, companies can measure their assets and position in the market.

But what is an intangible asset? How can we identify them? How can we know their value? Will your registration in my accounting be important? How do you know if it is worth doing? So we can have an endless number of questions, but for everyone it will always be: “It is always important, in addition to being correct to give a record with real value to my assets, such as intangibles”

The Financial Information Standards (NIF) in C-8 define these assets as those that are identifiable, without a physical substance, which in turn generate future economic benefits and that can be controlled by the company, in such a way that when they are facing an asset with these characteristics, it could be said that they are facing an intangible asset, below, a list of intangible assets is shown, but not limited to, by a table divided according to their contribution of value in a product or in a negotiation:

RELATED TO PRODUCTSRELATED TO PROCEDURESRELATED TO MARKETINGHYBRIDS
Patents
Inventions
Softwares
Literary, musical, or artistic/films compositions
Technical data / documentation
Patterns
Methodologies
Copyright
Natural resources
Databases
Permissions
Licenses and permits
Sales secrets
Design / Models
Formulas / recipes
Softwares

Methods
Know-how
Procedures
Systems
specific competences
Financial instruments
Integrated work forces
Smart supply chains
Supplier relations
Procedure manuals
Technical data / documentation
Training manuals
Management skills.

Logos

Trademarks
Tradenames
Brands
Bells
Polls
Customer lists
Import quotas
Customer relations
Distribution networks contracts
Retail spaces
Subscription lists
Publications / Leadership
Reputation.

Franchises

Permits / rights / licenses (air, water, land, excavations, emissions, broadcastings)
Domain names
Unique locations

As previously shown, there is a wide variety of intangible assets that may be being generated in companies at the time and that due to their lack of knowledge they are not being used and could even be susceptible to being stolen, for which reason it is recommended that Review with specialists your operating processes to know if intangible assets are currently being generated.

The NIF also mentions that the intangible assets can be originated by two Acquired and Internally Generated situations, in the first, it must be clearly explained that they are against an intangible asset and identify the point in time in which it will generate probable economic benefits and determine all the costs incurred in the acquisition of the intangible asset, while in the latter, two phases intervene:

INVESTIGATION PHASE

In this phase, research costs must be recognized as an EXPENSE in the period they are accrued. This is because the nature of the research is such that there is insufficient certainty that future economic benefits will be realized. Research costs should include all those that are directly attributable to the research activity or that can be assigned to that activity on a reliable basis, such as:

  • Those related to internal and external staff dedicated to the research activity.
  • The material costs consumed and services received in the research activity.
  • Cost of the equipment or facilities that they do not have that have no alternative use other than that of research.
  • Indirect costs, other than those of general administration.

DEVELOPMENT PHASE

In this phase, the development costs of a project should be recognized as an INTANGIBLE asset if the entity can demonstrate that it meets all the following criteria:

  • Technically, it is feasible to complete the production of the intangible asset so that it is available for use or sale.
  • The entity has the intention and ability to produce and sell or use the intangible asset.
  • It is feasible to identify how the intangible asset will generate future economic benefits.
  • There is a market for the production or process (if it is to be used internally and not sold), or its usefulness to the entity must be demonstrated.
  • Adequate technical, financial or other resources are available to complete development and to use or sell the intangible asset; and
  • The intangible asset is clearly defined and the cost attributable to the product or process can be separately identified and reliably valued during its development.

The cost of a DEVELOPED asset must comprise all disbursements that are directly attributable to the development phase or that can be assigned to said phase on a reliable and consistent basis to: Create, Produce, and Prepare the Asset or its intended use:

  • Those related to the employment of internal and external personnel dedicated to the development activity.
  • The costs of materials and services consumed in the development activity.
  • Depreciation of equipment used for development activity.
  • Indirect costs, other than the administration costs of the operation in general.

As it was possible to see the NIF within C-8 mention the entire procedure of the initial recognition of intangible assets, but something criticizable to them is that at no time do they mention the procedure of a Revaluation of intangible assets, since an asset intangible over time and if it has been well exploited and maximized its value increases considerably, for example a trademark is not worth the same at the time of its initial recognition as when it has a position in the market, in such a way that it should add to the NIF C-8 the part of the revaluation of intangible assets, as mentioned by IFRS in IAS 38, in this case, since it does not have an express standard in Mexico, by analogy it could be used what is mentioned in IFRS of the C38.

It is also important to mention that within the Action Plan on Base Erosion and Transfer of Profits (called BEPS), within action 8 the issue of intangibles was analyzed, this was published on October 5, 2015 by the Organization to Economic Cooperation and Development (OECD), generating the recommendations under Action 8 (Aspects of Intangible Transfer Prices). With the report entitled “Ensuring that transfer price results are in line with value creation, Actions 8 to 10 – Final reports 2015” which contains a revision of the standards for intangible transfer prices and additional standards with regarding comparability and transfer pricing methods. Likewise, the “Guide on Intangible Transfer Pricing Aspects” which contains a review of the intangible transfer pricing standards and additional standards regarding comparability and methods, all with emphasis on transfer treatment. of intangible assets, specifically emphasizing that the members of the Group must be compensated with an appropriate allocation derived from the income of the intangible for the functions performed, assets used and risks assumed in the development, improvement, maintenance, protection and exploitation of the intangible (called DEMPE), making a distinction between the Legal owner and the Economic Owner, since the legal ownership of an intangible asset as such does not confer any right to obtain the return from the exploitation of an intangible since if the legal owner does not perform relevant functions, does not use relevant assets and not Add relevant risks, and act only as the holder of the title, the legal owner in the end will not be entitled to any proportion of the return derived by the group for the exploitation of the intangible above the compensation at market value, if any, for owning the Title. This means that the benefit of the intangible asset will correspond to those entities that contribute to the maintenance and development of the intangible (economic owner).

Therefore, it is recommended to make an analysis in companies and their operational processes through a functional analysis (Assets, Functions and assumed risks) to see if intangible assets are being developed at the time, first registering them, in case they have identified and registered give them the value that corresponds to them and finally analyze who are the legal and economic owners to know the correct distribution of the intangible benefit.

Author: Ernesto Figueroa Rodríguez

CORPORATE

CORI Tax & Legal

Human Soul is part of the Cori Tax & Legal corporate, dedicated to accounting management, payroll systems and human capital management.
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