Objective
Sets out how to recognise and measure intangible assets not covered by another standard, including internally generated ones such as development costs.
Scope
- Intangible assets other than financial assets, goodwill acquired in a business combination (IFRS 3), deferred tax, leases within IFRS 16, employee benefit assets, and those covered by other standards.
Key definitions
- Intangible asset
- An identifiable non-monetary asset without physical substance.
- Identifiable
- Separable (can be sold, licensed or exchanged) or arising from contractual or other legal rights.
- Research
- Original, planned investigation undertaken to gain new scientific or technical knowledge.
- Development
- Applying research findings to a plan or design for new or substantially improved products or processes before commercial production.
Recognition & measurement
Recognition
- Recognise when it is probable that future economic benefits will flow and cost can be measured reliably.
- Research costs are always expensed.
- Development costs must be capitalised once the entity can demonstrate all of: technical feasibility, intention to complete, ability to use or sell, how it will generate probable future economic benefits, adequate resources to complete, and reliable measurement of the expenditure.
- Never recognised when internally generated: goodwill, brands, mastheads, publishing titles, customer lists and similar items.
- Expenditure on start-up activities, training, advertising and relocation is expensed.
- In a business combination, identifiable intangibles of the acquiree are recognised separately from goodwill, even if the acquiree had not recognised them.
Measurement
- Initially at cost.
- Subsequently: cost model, or revaluation model only if fair value can be determined by reference to an active market (rare).
- Finite life: amortise systematically over useful life, normally with nil residual value; review period and method at least each year end.
- Indefinite life (no foreseeable limit to cash flows): no amortisation; test for impairment annually and review the indefinite-life assessment each period.
- Expenditure expensed before the criteria were met cannot be reinstated as an asset later.
Key disclosures
- For each class: whether lives are finite or indefinite, amortisation methods and rates.
- Reconciliation of carrying amounts from opening to closing.
- For indefinite-life intangibles: carrying amount and reasons supporting the indefinite life.
- Research and development expenditure expensed in the period.
Common exam traps
- If you cannot separate research from development, treat it all as research.
- Capitalising development is mandatory once all criteria are met — it is not a choice.
- Indefinite does not mean infinite; it means no foreseeable limit.
- A purchased brand can be recognised; an internally developed one cannot.
Worked example: Development costs
Scenario. A company spends $300k on a project from January to March and $600k from April to December. All capitalisation criteria were first met on 1 April. The product launches next year.
- January–March costs ($300k): criteria not met → expense.
- April–December costs ($600k): criteria met → capitalise.
- Amortisation starts when the product is available for use (next year).
Answer: Expense $300k; recognise an intangible asset of $600k; no amortisation this year.
Practise MCQs on this standard
Test your understanding of IAS 38 with free chapter-wise MCQs and explanations in these question banks.
CAF-1 Financial Accounting and ReportingICAP CAFACCA FA Financial AccountingACCAACCA FR Financial ReportingACCACAF-6 Corporate ReportingICAP CAFCIMA BA3 Fundamentals of Financial AccountingCIMA Certificate in Business AccountingICAEW AF Accounting FundamentalsICAEW ACA Certificate LevelCA Inter P1 Advanced AccountingICAI CA Intermediate
ICAI CA Intermediate examines Indian Accounting Standards, which are based on but can differ from IFRS. Check your syllabus.