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IAS 38 Intangible assets briefly describe the accounting requirements for intangible assets, that are non- monetary assets, that are without physical substance and separately identifiable (either being separable or arising from contractual or other legal rights).



The objective of IAS 38 is to describe the accounting treatment and recognition for intangible assets that are not dealt with specifically in another IFRS. This Standard requires an entity to recognize an intangible asset if, and only if, specific criteria are met. This standard also describes how to measure the carrying amount of intangible assets and requires certain disclosures regarding intangible assets being made in financial statement.


IAS 38 applies to all intangible assets other than as mentioned here under in:

  • financial assets (IAS 32 Financial Instruments: Presentation)
  • exploration and evaluation assets (see IFRS 6 Exploration for and Evaluation of Mineral Resources)
  • expenditure on the development and extraction of minerals, oil, natural gas, and similar resources
  • intangible assets arising from insurance contracts issued by insurance companies
  • Intangible assets covered by another IFRS, such as intangibles held for sale (IFRS 5 Non-current Assets Held for Sale and Discontinued Operations), lease assets (IAS 17 Leases), assets arising from employee benefits (IAS 19 Employee Benefits (2011)), and goodwill (IFRS 3 Business Combinations).

 Common Intangibles Assets are:

  • Customer List
  • Customer Loyalty
  • Customer Relationship
  • Brand
  • Patent
  • License
  • Market Share
  • Marketing Relationship
  • Computer Software
  • Copy Right
  • Trademark
  • Import /Export Quota
  • Goodwill

Intangible Asset:

  • An asset
  • Non-Monetary
  • Without Physical Existence
  • Separately Identifiable

 Recognition Criterion

  • Cost can be measured reliably.
  • Future Economic Benefits flow to the entity.


Both these ‘Definition’ and ‘criterion’ should be satisfied for recognition of an intangible asset.

Acquisition of Intangibles Assets:

  1. Separate Acquisition
  2. Acquired as a part of Business Combination
  3. Acquisition by way of Government Grants
  4. Internally Generated Intangibles Assets
  5. By exchange of assets 
  1. Separate Acquisition 

Cost Recognition

  • Purchase Price
  • Import Duty
  • Excise Duty
  • Non-Refundable Taxes
  • Less; Trade Discount/Rebates
  • Cost Directly Attributable to bring the asset in a place and condition where it is ready to use and sell.

Cost directly attributable includes; 

  • Professional Charges/fees
  • Cost of Testing
  • Employee Economic Benefits; Salaries and wages
  1. Acquired As a Part of Business Combination

This portion generally relates to Intangible assets acquired when a company (the acquirer) buys a controlling interest in another company (the acquire). This portion in large relates to the recognition of intangible asset in the consolidated financial statement of parent company.


Intangibles assets that are acquired as a part of Business Combination should be recognized at Fair Value. (IFRS-3). There is a presumption that the fair value (and therefore the cost) of an intangible asset acquired in a business combination can be measured reliably. An expenditure (included in the cost of acquisition) on an intangible item that does not meet both the definition of and recognition criteria for an intangible asset should form part of the amount attributed to the goodwill recognized at the acquisition date.

  1. Acquired By Way Of Govt. Grants

A government transfers or allocates intangible assets such as airport landing rights, licenses to operate radio or television stations ,import licenses or quotes or rights to access other restricted resources.

An intangible asset may be acquired free of change, or for nominal consideration, by the way of a government grant.


IAS 20: Accounting for Government Grants and Disclosure of Government assistance, allows the intangibles assets and the grant to be recorded at fair value initially or at nominal amount plus any expenditure that is directly attributable to preparing the asset for its intended use.

  1. Internally Generated intangibles Assets

These following undermentioned internally generated intangibles assets will be never recognized, that are,

  • Internally Generated Brand
  • Internally Generated Goodwill
  • Internally Generated Publishing  Titles
  • Internally Generated Customer Lists

Research & Development Expenditure

Research; Research is planned search or investigation aimed to discover new knowledge.

 Example: Activities aimed at obtaining new knowledge etc.

 Development; Development is transformation of research finding into new Project.

 Example: The design, construction and testing of pre-production prototypes and models.

Paragraph 57 of IAS 38

  • There is separately identifiable intangible asset.
  • There is economically viable Project.
  • There is commercially possible project.
  • There is technically feasible project.
  • There is overall profitable project.
  • There are resources available to complete the project.

If any one of these conditions are not met, such development expenditure must be treated as research cost.


The cost of an internally generated intangibles asset comprises all expenditure incurred from the date when the intangibles assets first meet the recognition criterion for such assets. Expenditure that is previously expensed out should not be capitalized again.

 The relevant cost/expenditures include;

  • Expenditures on materials and services used or consumed.
  • The salaries and wages of direct personnel engaged in generation of Intangible asset.
  • Any other directly attributable expense

5: By Exchange of assets

An intangible asset may be acquired in exchange or part exchange for another intangible asset or another asset.


The cost of such items is measured at fair value unless;

  1. The exchange transaction lack commercial substances
  2. Or, the fair value of neither the asset received nor the asset given up is reliably measurable.

If the acquired item is not measured at fair value, it is measured at the carrying amount of asset given up.

 Measurement subsequent to acquisition: cost model and revaluation models allowed

An entity must choose either the cost model or the revaluation model for each class of intangible asset.

 Cost model. After initial recognition intangible assets should be carried at cost less accumulated amortization and impairment losses.

 Revaluation model. Intangible assets may be carried at a revalued amount (based on fair value) less any subsequent amortization and impairment losses only if fair value can be determined by reference to an active market.

 Amortization of Intangible asset:

A company must assess whether the useful life is finite or indefinite;

Intangibles assets with a finite useful life

The cost less residual value of an intangible asset with a finite useful life should be amortized on a systematic basis over that life.

  • The amortizations method should reflect the pattern of benefits.
  • If the pattern cannot be determined reliably, amortize by the straight-line method.
  • The amortization charge is recognized in profit or loss unless another IFRS requires that it be included in the cost of another asset.
  • The amortizations period should be reviewed at least annually.
  • Amortization begins when asset is ready to be available for use.
  • Amortization end at the earlier of the date the asset is held classified for sale or the date asset is derecognized.
  • The residual value generally assumed to be zero unless commitment made by third party to purchase asset at the end its useful life.

Intangibles assets with an indefinite useful life

When the useful life is indefinite;

  1. I) the intangible asset should not be amortized.
  2. II) the asset should be checked for impairment at least annually.


The   rules relating to disposal of intangible asset are same as mentioned in IAS-16. There is a gain or loss on disposal equal to difference between the sales proceed and carrying value of the asset at the time of disposal.

 Subsequent expenditure

Due to the nature of intangible assets, subsequent expenditure will only rarely meet the criteria for being recognized in the carrying amount of an asset. Subsequent expenditure on brands, mastheads, publishing titles, customer lists and similar items must always be recognized in profit or loss as incurred.


For each class of intangible asset, disclose:

  • useful life or amortizations rate being used
  • amortizations method being used
  • gross carrying amount of Intangible asset
  • accumulated amortizations and impairment losses recognized
  • line items in the income statement in which amortizations is being included
  • reconciliation of the carrying amount at the beginning and the end of the period showing:
    • additions (business combinations separately)
    • assets held for sale
    • retirements and other disposals
    • revaluations
    • impairments
    • amortizations
  • basis for determining that an intangible asset has an indefinite life
  • information about intangible assets whose title is restricted
  • contractual commitments to acquire intangible assets

Additional disclosures are required about:

  • intangible assets carried at revalued amounts
  • the amount of research and development expenditure recognized as an expense in the current financial period

 References:     ICAP Curriculum and Research

 Muhammad Mubeen Liaqat

October 29, 2020

ML BLOG 29102020