Intangible Assets (IAS 38)
How to identify, recognise and measure intangible assets under IAS 38, from the definition tests through the research-versus-development split to amortisation and impairment. A practitioner’s reference for the judgements that decide what goes on the balance sheet and what is expensed.
What qualifies as an intangible asset
An intangible asset is an identifiable, non-monetary asset without physical substance. Identifiability turns on whether the item is separable, capable of being sold or transferred, or arises from contractual or legal rights. Items failing these tests are not recognised separately; internally generated goodwill, in particular, is never recognised.
Recognition criteria
An intangible asset is recognised only when it is probable that expected future economic benefits will flow to the entity and the cost can be measured reliably. Where an item is acquired in a business combination, its fair value is presumed to be measurable, and it is recognised separately from goodwill.
Research versus development
Research expenditure is always expensed as incurred. Development expenditure is capitalised only once all six criteria are met, technical feasibility, intention and ability to complete and use or sell, probable future benefits, availability of resources, and reliable measurement of cost. This split is the most common area of judgement in practice.
Measurement, amortisation and impairment
Intangibles are measured initially at cost. After recognition, the cost model or (rarely, where an active market exists) the revaluation model applies. Finite-life assets are amortised over their useful life; indefinite-life intangibles are not amortised but tested for impairment at least annually.
Written by the team at Finit Solutions, chartered accountants, Jersey.