How to approach it
- Development project: time-apportion each cost line and keep only the part incurred after all recognition criteria were met.
- Software bought: include the price, non-refundable taxes and directly attributable configuration; exclude hardware (IAS 16), training and post-go-live costs.
- Deferred payment: cost is the cash price equivalent; the difference is interest.
- Useful life: consider renewal options at insignificant cost and management's intention, then compare with the residual value pattern.
- Amortise from the date the asset is available for use, not the date it is first used.
- Present the note: cost and accumulated amortisation, opening, additions, amortisation, closing.
Key rules to apply
- IAS 38: research is expensed; development is capitalised only from when all six criteria are demonstrated. Costs expensed earlier cannot be reinstated.
- Directly attributable costs only; training, selling and general overheads are expensed.
- Amortisation begins when the asset is available for use.
- If payment is deferred beyond normal credit terms, cost is the cash price equivalent.
- Renewal periods count towards useful life only if renewal is supported by evidence and its cost is not significant.
Answer layout
| Intangible assets note | App | Software | Licence | Total |
|---|---|---|---|---|
| Cost: additions | ||||
| Amortisation for the year | ||||
| Closing carrying amount | ||||
| Useful life / method |
Common mistakes
Drawn from the examiners' comments for this sitting (summarised in our words) and from typical errors on this topic.
- Capitalising design or salary costs incurred before the criteria were met (examiners' point).
- Starting amortisation from first use instead of availability for use.
- Including servers in the intangible, or treating 'perpetual' software as indefinite-life despite expected obsolescence.
- Ignoring a cheap renewal option when setting the licence's life.
Similar question with worked solution
Written by us with our own numbers; it tests the same skills as Q7 without copying it.
Original practice question
Development costs and a deferred-payment licence
Kiran Ltd (year-end 31 December 2025) spent Rs 8m on research January–March 2025 and Rs 24m on development April–September 2025, incurred evenly. All IAS 38 criteria were met on 1 June 2025. Staff training cost Rs 2m. The software was available for use on 1 October 2025 (life 4 years) but used from 1 November 2025.
On 1 January 2025 Kiran bought a 5-year licence: Rs 30m paid immediately and Rs 40m due on 31 December 2026. The cash price was Rs 63m.
Required: Calculate the cost, amortisation and carrying amount of each intangible at 31 December 2025.
Worked solution
| Item | Software (Rs m) | Licence (Rs m) |
|---|---|---|
| Cost | 24 × 4/6 = 16.0 | 63.0 |
| Amortisation 2025 | 16 ÷ 4 × 3/12 = 1.0 | 63 ÷ 5 = 12.6 |
| Carrying amount | 15.0 | 50.4 |
Research (Rs 8m), development April–May (Rs 8m) and training (Rs 2m) are expensed. The Rs 7m difference between Rs 70m paid and the Rs 63m cash price is finance cost over the credit period, not licence cost.
Answer: Total cost Rs 79m, amortisation Rs 13.6m, carrying amount Rs 65.4m.