Page 5 - 4. COMPILER QB - INDAS 38

Further, Ind AS 38 provides that an entity may have a team of skilled staff and may be able to identify
incremental staff skills leading to future economic benefits from training. The entity may also expect that the
staff will continue to make their skills available to the entity. However, an entity usually has insufficient

control over the expected future economic benefits arising from a team of skilled staff and from training for
these items to meet the definition of an intangible asset. For a similar reason, specific management or
technical talent is unlikely to meet the definition of an intangible asset, unless it is protected by legal rights
to use it and to obtain the future economic benefits expected from it, and it also meets the other parts of
the definition.

Since the right in the instant case is contractual, identifiability criterion is satisfied. Based on the facts
provided in the given case, the player is prohibited from playing in other teams by the terms of the contract
which legally binds the player to stay with ABC Ltd for 5 years.
Accordingly, in the given case, the company would be able to demonstrate control. Future economic benefits
are expected to arise from use of the player in matches. Further, the cost of obtaining rights is also reliably

measurable. Hence, it can recognise the costs incurred to obtain the right regarding the player as an intangible
asset. However, careful assessment of relevant facts and circumstances of each case is required to be made.

Q5 (May. 20)

PQR Ltd. is a gaming developer company. Few years back, it developed a new game called 'Cloud9'. This game
sold over 10,00,000 copies around the world and was extremely profitable. Due to its popularity, PQR Ltd.
released a new game in the ‘Cloud9’ series every year. The games continue to be the bestseller. Based on
Management’s expectations, estimates of cash flow projections for the ‘cloud9 videogame series’ over the next
five years have been prepared. Based on these projections, PQR Ltd. believes that cloud9 series brand should
be recognised at INR 20,00,000 in its financial statement. PQR Ltd. has also paid INR 10,00,000 to MNC Ltd.

to acquire rights of another video game series called the ‘Headspace’ video game series. The said series have
huge demand in the market.
Discuss the accounting treatment of the above in the financial statements of PQR Ltd.
SOLUTION

In order to determine the accounting treatment of ‘cloud9 videogame series’ and ‘Headspace’, definition of
asset and intangible asset given in Ind AS 38 may be noted:
“An asset is a resource:

(a) controlled by an entity as a result of past events; and
(b) from which future economic benefits are expected to flow to the entity.”
“An intangible asset is an identifiable non-monetary asset without physical substance.”
In accordance with the above, for recognising an intangible asset, an entity must be able to demonstrate that
the item satisfies the criteria of identifiability, control and existence of future economic benefits.

In order to determine whether ‘cloud9 video game series’ meet the aforesaid conditions, following provisions of
Ind AS 38 regarding Internally Generated Intangible Assets may be noted:
As per Ind AS 38, internally generated brands, mastheads, publishing titles, customer lists and items similar in
substance should not be recognised as intangible assets. Expenditure on such items cannot be distinguished
from the cost of developing the business as a whole. Therefore, such items are not recognised as intangible
assets.

Accordingly, though the cash flow projections suggest that the cloud9 brand will lead to future economic
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