IAS 38 – Intangible Assets (Revaluation of Patents)

Well! I’ve just read through 4 articles on the Internet and none of them seems to me to suggest that patents are not allowed to be revalued. Mind you, there was nothing in any of them that suggested they could be revalued either

Send me the link, will you please, where I can read that patents may be whereas patented technology can’t.

You’re right! This IS one of the best websites for accounting matters and that’s why I recommend it so often. It was the first site that I went to to check on this problem of yours, but I could find nothing on iasplus to suggest that patents could or could not be revalued.

So I went to three others

I’ve just checked iasplus again following your most recent post but I can’t see anything in there still about revaluations of patents. Incidentally, I don’t see much about patents themselves, only patented technology.

So I’m now going to go back into the Internet to see if there is a difference between patents themselves and the technology that has been patented.

I may be back!

Hi, I am still confused…

In my BPP course notes the Lecture example asks the following:

Stauffer owns a 30 year patent which it acquired 2 years ago for $8m which is being amortised over its useful remaining life of 16 years from acquisition.
The product sold is performing much better than expected. Stauffer’s valuation consultants have valued its current market price at $14m.

Explain how the directors should treat the above in the Financial Statements.

Excerpt of the answer:
“A Patent cannot be revalued under IAS 38 rules as there is no active market as a patent is unique. IAS 38 does not permit revaluation without an active market as the value cannot be reliably measured in the absence of a commercial transaction”

Mike, the document you provided a link to suggests that Patents can be revalued if there is an active market, but BPP seem to think that Patents do not have an active market….

If thats the case BPP’s interpretation of the standard is incorrect or at least the way the have worded it is confusing. They are implying that there is no active market what so ever for patents as a whole. I’ve actually found my own written notes of my tutor telling the class this too.

In this lecture example, I would say that there is an active market because the patent has been sold… therefore BPP are incorrect on both counts…. their answer to the lecture example and the interpretation of IAS 38.

OK thanks for your help.
It would have been helpful if BPP said that in the course notes.

Mike,

I spoke to my manager.. he is the CFO. Here is his explanation:

Unless there is an active market, it should not be revalued. Intangible assets are strange things – unless there is a buyer, then it is not possible to revalue as there is no way to gauge what the actual value is at a specific point in time.
A good example would be the pharma market, say a cancer drug designed by GSK. GSK may be able to make a lot of money from holding the patent on that particular drug but they can’t say with any certainty what the value of the patent is because no-one has bought it. There may well be an active market in cancer drugs generally so they may estimate that the patent’s value has increased but until they actually sell that patent, they have no way of knowing what it is actually worth – at least not with any sufficient degree of certainty to be able to book the increased value in their accounts
—

Although Patents aren’t frequently bought and sold, it would be incorrect to assume that because a patent is unique there is absolutely no active market for them, therefore BPP are incorrect in their interpretation, and your article in the link is correct.

Thanks 🙂

If I was take BPP’s answer to this question and apply it to the work environment, my Financial Statements would be incorrect, so no I do not think it’s not harsh especially when you consider the amount of money we pay BPP.

Their answers always seem to be final… there is never explanation for why the answer is right. I shouldn’t have to spend my weekend trying to find other resources to explain an answer or have to bother my manager with these questions even though I secretly know he likes it.

There are a few other inconsistencies I noticed yesterday on the revaluation of assets… one example clears all the accumulated depreciation prior to revaluation and then reposts depreciation on the revalued amount from the date of acquisition, another leaves accumulated depreciation as it is, and posts the current periods’ depreciation based on the revalued amount.
– All very confusing…

On March 1, 2016, we obtained a patent for 5,500 dollars.
At the close of the fiscal year, on December 31, 2016, the fair value of the patent was 7,000 dollars.
As of December 31, 2017, the fair value of the patent stands at 6,000 dollars.
The criterion we use for valuation after the initial recognition of the asset is the revaluation model.
Formulate:
? Make the accounting entries corresponding to the acquisition of the asset and at each accounting close.