A license is a permit for any activity, production, which is issued to an appropriate person (legal or physical) by a certain licensor. After obtaining, the license becomes on the balance sheet of the enterprise and provides for a number of operations that must be reflected in accounting and tax accounting.
How is a license characterized in accounting?
According to IFRS regulation 38, intangible assets are an identifiable non-monetary asset that has no physical form. An asset is a resource received by an organization in the past and controlled in the present, which promises to receive significant economic benefits. Typically, the value of an asset is estimated in advance.
A license as an intangible asset is characterized by three characteristics: non-monetary, identifiable and intangible.
Non-monetary assets, unlike monetary ones, do not have a monetary form. Monetary assets themselves are monetary funds in both cash and non-cash forms, as well as all financial investments, deposits and debts belonging to the organization. The license has no monetary form, therefore it is an intangible asset.
Identifiability implies that an asset can be separated from other items owned by the company. A license, for example, can be sold, and this suggests that this asset is already capable of bringing some economic benefit to the organization. Immateriality presupposes the absence of a physical form for an object and at the same time its connection with some material objects or actions. For example, an operating system can be an intangible object, but the computer on which it is installed has a physical form. In the case of a license, it itself, as an intangible asset, is associated with the product or activity for which it was issued.
On what grounds does the license refer to intangible assets?
The first sign is industry affiliation. Licenses, as a rule, are issued for any highly specialized activity, which often forms the basis of production. Intangible assets have different periods of use. Licenses are rarely issued indefinitely - after a year, five, ten years, etc. you will have to prove your right to own a license. An important feature of a license as an intangible asset is its regulation by certain regulatory documents.
Intangible assets can generally be alienable and inalienable. Since the license can be sold, it is classified as an alienable intangible asset. Thus, in the accounting of an enterprise, the license must be accounted for as an intangible asset. This means that when controlling it, the accountant must know the clauses of the provisions of the IFRS 38.
