About

IAS 38 sets out the criteria for recognising and measuring intangible assets and requires disclosures about them. An intangible asset is an identifiable non-monetary asset without physical substance. Such an asset is identifiable when it is separable, or when it arises from contractual or other legal rights. Separable assets can be sold, transferred, licensed, etc. Examples of intangible assets include computer software, licences, trademarks, patents, films, copyrights and import quotas. Goodwill acquired in a business combination is accounted for in accordance with IFRS 3 and is outside the scope of IAS 38. Internally generated goodwill is within the scope of IAS 38 but is not recognised as an asset because it is not an identifiable resource.

Expenditure for an intangible item is recognised as an expense, unless the item meets the definition of an intangible asset, and:

  • it is probable that there will be future economic benefits from the asset; and
  • the cost of the asset can be reliably measured.

The cost of generating an intangible asset internally is often difficult to distinguish from the cost of maintaining or enhancing the entity’s operations or goodwill. For this reason, internally generated brands, mastheads, publishing titles, customer lists and similar items are not recognised as intangible assets. The costs of generating other internally generated intangible assets are classified into whether they arise in a research phase or a development phase. Research expenditure is recognised as an expense. Development expenditure that meets specified criteria is recognised as the cost of an intangible asset.

Intangible assets are measured initially at cost. After initial recognition, an entity usually measures an intangible asset at cost less accumulated amortisation. It may choose to measure the asset at fair value in rare cases when fair value can be determined by reference to an active market.

An intangible asset with a finite useful life is amortised and is subject to impairment testing. An intangible asset with an indefinite useful life is not amortised, but is tested annually for impairment. When an intangible asset is disposed of, the gain or loss on disposal is included in profit or loss.

What you should know

  • Know and apply the definitions.
  • Define and explain the nature of intangible assets.
  • Key characteristics of an intangible asset
  • Calculate the following amounts:
    • cost price (purchased intangible assets and internally generated intangible assets);
    • amortisation amount;
    • residual value; and
    • carrying amount.
  • Distinguishing between acquired and internally generated intangibles
  • Explain the criteria relating to the initial recognition of intangible assets and their measurement at point of initial recognition.
  • explain how to measure intangibles subsequent to initial recognition, including the principles relating to the amortisation of intangibles
  • Understand the recognition and measurement of internally generated intangible assets and apply those to practical situations.
  • Understand the recognition and measurement of research and development costs and apply those to practical situations.
  • Distinguish between intangible assets with a finite useful life and intangible assets with an indefinite useful life.
  • Explain the accounting for retirement and disposal of intangible assets
  • Present and disclose intangible assets in the annual financial statements.
  • Apply the disclosure requirements of IAS 38.