Objective
IAS 38 prescribes the accounting treatment for intangible assets, including their recognition, measurement, amortization, and impairment, ensuring financial statements reflect the economic benefits from intangible resources.
Intangible assets are identifiable non-monetary assets without physical substance.
🧾 1. Scope
Applies to all intangible assets except:
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Financial assets (IFRS 9)
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Leases (IFRS 16)
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Mineral rights, exploration costs (IAS 16/IFRS 6)
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Goodwill acquired in a business combination (IFRS 3)
💡 2. Key Definitions
| Term | Meaning |
|---|---|
| Intangible Asset | Identifiable, non-monetary asset without physical substance, controlled by the entity, and expected to generate future economic benefits. |
| Finite Useful Life | Asset expected to contribute to cash flows for a limited period → amortize. |
| Indefinite Useful Life | No foreseeable limit to period of economic benefits → test for impairment annually. |
| Research Costs | Costs incurred to obtain new knowledge → expense immediately. |
| Development Costs | Costs incurred to apply research findings to create a product → capitalize if criteria met. |
⚙️ 3. Recognition Criteria
An intangible asset is recognized if:
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Probable future economic benefits
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Cost can be measured reliably
Cannot be recognized:
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Internally generated brands, mastheads, customer lists, and goodwill
🔄 4. Measurement
A. Initial Measurement
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At cost, including:
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Purchase price
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Directly attributable costs (legal fees, registration costs)
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Example 1:
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Software purchased for $50,000
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Legal and implementation fees = $5,000
B. Subsequent Measurement
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Cost Model – Carrying amount = cost – accumulated amortization – impairment
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Revaluation Model – Fair value at revaluation date – accumulated amortization & impairment (only if active market exists)
🧮 5. Useful Life & Amortization
| Type | Amortization |
|---|---|
| Finite life | Systematic basis (straight-line or usage) over useful life |
| Indefinite life | Not amortized; annual impairment test required |
Example 2 – Amortization:
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Software cost = $55,000
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Useful life = 5 years
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Annual amortization = 55,000 ÷ 5 = $11,000
⚖️ 6. Impairment
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Test for impairment if:
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Indications of asset value decline (finite life)
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Annual test required for indefinite life assets
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Example 3 – Impairment Loss:
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Carrying amount = $50,000
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Recoverable amount = $40,000
🧩 7. Internally Generated Intangible Assets
| Stage | Treatment |
|---|---|
| Research | Expense immediately |
| Development | Capitalize if all conditions met: technical feasibility, intention to complete, ability to use/sell, probable future economic benefits, availability of resources, ability to measure cost reliably |
Example 4 – Development Costs Capitalization:
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Development costs = $100,000
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Criteria met → capitalize as intangible asset
📋 8. Derecognition
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Remove from books when disposed or no future economic benefits expected
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Gain or loss recognized in profit or loss
Example 5 – Disposal:
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Carrying amount = $20,000
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Sale proceeds = $25,000
📊 9. Summary Table – IAS 38 Accounting
| Item | Recognition | Measurement | Example |
|---|---|---|---|
| Purchased software | Yes, cost measurable | Cost + directly attributable costs | $50,000 + $5,000 legal fees |
| Research | No | Expense | R&D on new product $10,000 |
| Development | Yes, if criteria met | Cost | $100,000 project costs |
| Amortization | Finite life | Systematic basis | $55,000 ÷ 5 years = $11,000/year |
| Impairment | If carrying amount > recoverable | Recognize loss in P/L | Loss $10,000 |
| Disposal | Derecognize | Gain/loss in P/L | Gain $5,000 |
🎯 10. Key Points
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Intangible assets must be identifiable, controlled, and expected to generate future benefits
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Research costs → expense, development costs → capitalize if criteria met
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Finite life → amortize, indefinite life → annual impairment test
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Gains/losses on disposal recognized in profit or loss
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Disclosure includes useful life, amortization method, carrying amounts, revaluation, impairment