IAS 38 says that subsequent expenditures on licences should be expensed and should not be capitalised.
However, if a company buys a licence for a period of say 5 years, it will be completely amortised by the end of 5 years using straight line method having no residual value. If the company renews the licences subsequently, then as per IAS 38 they cannot capitalise the subsequent expenditure on the licence.
My question is, if every thing is done as mentioned above, the company's intangible assets register will not show the licence as it is previously amortised, but the company is having the benefits after subsequent expenditure. Does it make sense?
The renewal cost should be capitalised under IAS 38 as it will be treated as initial cost of asset, therefore should be amortised according to the new useful life of the new license.
according to IAS 38 the recognition requirements of intangible asset applies to "costs incurred initially to acquire or internally generate an intangible asset and
those incurred subsequently to add to, replace part of, or service it."
So I have a different opinion if you say the subsequent expenditure can´t be capitalized.
If the renewal of the licences meets the requirements of recognization i.e. future benefit and the cost is reasonable measureable, you should also capitalized the renewed licences as "intangible asset" for the new term.
When a licence is amortised and subsequently renewed, take value less accumulated amortisation and add to expense of renewing licance and amortise over new effective life.
This is a bit like revaluation of Non Current Asset. NCA are depreciated over useful life. When it has permanenant additions, like making 2 extra rooms on a floor of the office building, add cost to the net book value and depreciate the new value over expected useful lfe.