Intangible Assets Accounting and Impairment Testing Policy

Effective Date: 31/12/2024

1. Purpose

This policy establishes the accounting treatment for intangible assets, including initial recognition, measurement, amortization, and impairment testing in compliance with IFRS (IAS 38 – Intangible Assets & IAS 36 – Impairment of Assets). It applies to all departments handling intangible assets.

2. Scope

This policy applies to:

• Internally developed software and acquired software licenses
• Customer databases and relationships
• Patents, trademarks, copyrights
• Brand value and goodwill (arising from business combinations)
• Other intangible assets (if applicable)
• Purchase Price Allocation (PPA) , an acquisition accounting process of assigning a fair value to all of the acquired assets and liabilities assumed by the target company

3. Recognition & Initial Measurement (IAS 38)

3.1 Criteria for Recognition

An intangible asset shall be recognized if:

1. Identifiability
   • is separable (capable of being separated and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract)
   • arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.
2. Controllablility
   • power to obtain benefits from the asset
   • Tradable: have clearly defined ownership rights that can be transferred
3. Future economic benefits
   • Generate measurable future economic benefits which can be quantified through discounted cash flow. (such as revenues or reduced future costs)
   • it is probable that the future economic benefits that are attributable to the asset will flow to the entity and the cost of the asset can be measured reliably.

3.2 Initial Measurement

• Purchased Intangibles: Measured at cost, including purchase price and directly attributable costs.
• Internally Developed Software: Recognized if development costs meet the criteria of IAS 38, particularly:
  • Research phase → Expensed immediately.
  • Development phase → Capitalized if technical feasibility, future benefits, and funding availability are demonstrated.

3.3 Subsequent Measurement

• Intangible assets are measured using:
  • Cost Model (default): Asset is carried at cost less accumulated amortization and impairment losses.
  • Revaluation Model (if an active market exists): Asset is carried at fair value.

4. Amortization of Intangible Assets

• Intangible assets with finite lives are amortized over their useful life.
• Default useful lives:
  • Software: 3-7 years
  • Customer Relationships: 2-5 years
  • Patents & IP: 10-20 years
  • Trademarks: 10-15 years (unless indefinite)
• Intangible assets with indefinite lives (e.g., goodwill, certain brands) → Not amortized but subject to annual impairment testing.

5. Impairment Testing (IAS 36)

5.1 Indicators of Impairment

Impairment testing is required if:

• The asset’s market value declines significantly.
• The asset is no longer in use or is becoming obsolete.
• Business projections indicate negative cash flows.
• A legal/regulatory change affects asset value.

5.2 Annual Impairment Test for Indefinite-Life Assets

For goodwill and other indefinite-life intangibles, impairment tests are conducted annually or when impairment indicators arise. The process involves:

1. Determining the recoverable amount (higher of fair value less costs to sell or value in use).
2. Comparing the recoverable amount to the carrying amount:
   • If carrying amount > recoverable amount, recognize an impairment loss.
   • If carrying amount ≤ recoverable amount, no impairment is recognized.

5.3 Value-in-Use Calculation

If the recoverable amount is based on value-in-use, future cash flows are estimated and discounted using an appropriate discount rate.

5.4 Recording Impairment Losses

• Impairment losses are recognized immediately in the profit and loss statement.
• Impairment cannot be reversed for goodwill, but other intangibles can be reversed if conditions improve.

6. Reporting and Disclosure

6.1 Financial Statement Disclosures

For each class of intangible asset, the following must be disclosed:

• Carrying amount
• Amortization method and useful life
• Impairment losses recognized
• Significant assumptions used in valuation

6.2 Internal Reporting

• The Finance Department must prepare an annual impairment report for senior management.
• Internal reviews should be conducted quarterly for indicators of impairment.

7. Roles & Responsibilities

Role	Responsibility
Finance Team	Maintain accurate accounting records and perform impairment testing.
IT Department	Provide data on software usage and expected obsolescence.
Business Units	Assess the value of customer relationships and data assets.
Senior Management	Approve impairment assessments and strategic decisions.

8. Review and Updates

• This policy will be reviewed annually or when IFRS updates impact intangible asset accounting.
• Updates must be approved by the CFO or Finance Director.

9. Policy Exceptions

This policy ensures that intangible assets are accounted for transparently, consistently, and in compliance with widely accepted financial standards while safeguarding financial integrity. Any deviations from this policy must be approved in writing by the CFO and documented.

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Approval & Acknowledgment

Version: v1.1.
Department: Finance & Accounting
Prepared by: Taro Shimizu, Attorney at law Date: 31/12/2024
Approved by: CEO, Shoichiro Tanaka Date: 31/12/2024