IAS 38: Intangible Assets Last updated: January 2014

SCOPE RECOGNITION AND INITIAL MEASUREMENT

Apply to: Intangible assets = identifiable non- If definition of intangible asset met→ recognize & measure @ cost if: probable that future economic benefits from asset will flow to entity AND cost reliably
monetary asset without physical substance measurable (assess probability using reasonable & supportable assumptions = best estimate of economic conditions over useful life).
(e.g., copyrights, fishing licenses, patents,
If recognition criteria NOT met→ asset is expensed or it forms part of goodwill in a business combination. If initially expensed → CANNOT recognize as
import quotas, marketing rights etc).
intangible @ later date.
 Identifiable = Separable i.e., can be divided INTERNALLY GENERATED: OTHER:
from entity & sold, transferred, licensed, ACQUISITION AS PART OF
Difficult to determine if qualifies for recognition. Therefore, to assess if  Acquired by government
rented/exchanged, either individually/ BUSINESS COMBINATION:
recognition criteria met→ classify into 2 phases as follows: grant: free or for nominal
together with related contract/ identifiable  Recognition criteria always consideration→ can
asset/liability, regardless of entity’s intention considered met.
OR arises from contractual/other legal rights, RESEARCH PHASE e.g., obtain DEVELOPMENT PHASE e.g., design, construction & test of pre- choose to recognize
 Cost = FV @acquisition date. new knowledge & search for production prototypes; design of tools & moulds involving asset/grant @ FV OR use
regardless of whether those rights are Acquiree’s in-process research applications of research findings, new technology; design, construction & testing of chosen nominal amount PLUS
transferable/separable from entity/other & development project: search for & final selection of alternative for new material/product/process/service etc. direct attributable
rights & obligations.  If meets definition of
 Asset = resource controlled by entity as result possible alternatives for Expenditure recognized as intangible if can demonstrate ALL expenditure to prepare for
intangible → recognize, even material/ product/ of the following: intended use (IAS 20).
of past events AND from which future if acquiree did not.
economic benefits expected to flow to entity. process/service etc.  Technical feasibility of completion to available for use/sale.  Non-monetary exchanges
 Subsequent expenditures  All expenditures in this phase  Intent to complete & use/sell. → cost = FV UNLESS FVs of
 Control = power to obtain future economic accounted like internally are expensed → cannot  Ability to use/sell. assets received & given
benefits (e.g., revenue from products/ generated. demonstrate probability of  How intangible will generate probable future economic NOT reliably measurable
services/cost savings etc) & restrict access of
SEPARATE ACQUISITION: future economic benefit benefits (e.g., demonstrate existence of market for output/ OR transaction lacks
others to those benefits. Normally stems from
during the research phase. intangible asset or internal usefulness - use IAS 36 commercial substance.
legal rights enforceable in court of law.  Probability of future benefits
 If cannot distinguish research principles, including CGUs to assess).  Internally generated
 If tangible (e.g., PPE) & intangible elements → always considered met.
phase from development  Availability of adequate technical, financial & other goodwill→ NOT
use judgment to assess which is more  Cost (usually reliably
phase of a project → all resources to complete & use/sell. recognized as intangible
significant. measurable) = purchase price
expenditure on that project  Ability to reliably measure attributable development (does not meet definition/
(including duties & non- recognition criteria).
Does NOT apply to: intangible assets in scope of expensed as research. expenditures.
refundable taxes, excluding  Internally generated
another standard (e.g., tax assets, held for sale,
rebates & trade discounts) & Cost = all directly attributable costs necessary to create, produce & prepare asset to be capable brands, mastheads,
goodwill etc.); financial assets (IAS 32);
any directly attributable costs of operating in intended manner AND incurred from date first met recognition criteria. publishing titles, customer
recognition & measurement of exploration &
of preparing for intended use. Examples: materials & services used/consumed, employee benefits, fees to register legal right, lists, etc. → NOT
evaluation assets (IFRS 6); development &
- May be cash price equivalent amortization of patents & licenses used, borrowing costs etc. (NOT selling, admin & general recognized as intangible
extraction of non-regenerative resources
if deferred payment. overhead, inefficiencies & initial operating losses, advertising, training). (cannot distinguish from
expenditure (e.g., minerals, oil, natural gas etc).
cost to develop business
USEFUL LIFE SUBSEQUENT MEASUREMENT as a whole).
Finite →amortize over useful life (similar to Indefinite →NOT amortized. REVALUATION MODEL: carry at FV @ date of revaluation LESS  Review useful life, residual
IAS 16 depreciation).  Regard as indefinite when no CHOOSE
subsequent accumulated amortisation/impairment (similar to IAS 16 value & amortization
 Assess period of time/units of foreseeable limit to period over EITHER:
revaluation model). methods annually.
production or similar units. which asset is expected to  FV measured by reference to active market (uncommon to exist).  See IAS 36 for impairment
 Residual value assumed zero UNLESS: generate net cash inflows [based  Use for entire class & revalue @ same time UNLESS no active testing.
rd
purchase commitment by 3 party OR on analysis of all relevant factors market for those assets.  See IAS 38 for retirements
reference to active market probable to (e.g., unlikely where susceptible  If no active market → carry same as cost model. If no longer active and disposals (similar to IAS 16
exist at end of useful life. to technological obsolescence)]. COST MODEL: market ї ƵƐĞůĂƐƚƌĞǀ ĂůƵĂƟŽŶ& consider if impaired. derecognition for PPE).
 Useful life <= period of contractual/legal right UNLESS evidence supports Carry at cost less  Does NOT allow: revaluation of intangible assets not previously  IAS 38 has illustrative
renewal without significant cost. accumulated recognized as assets OR initial recognition @ amounts ≠ cost. examples.
 Acquired right from business combination → useful life = remaining amortization &  If part of cost only met recognition criteria once part way through  IFRIC 32 applies IAS 38 to
contractual period WITHOUT renewal. impairment. process ї ŵĂLJĂƉƉůLJƌĞǀ ĂůƵĂƟŽŶŵŽĚĞůƚŽǁ ŚŽůĞŽĨasset. website costs.
This communication contains a general overview of IAS 38: Intangible Assets. This summary is not comprehensive and should be considered only in conjunction with review and consideration of the requirements of the relevant International Financial Reporting Standards.
This information is current as at January 2014 and should not be regarded as a substitute for professional advice. MNP LLP accepts no responsibility or liability for any loss or damage caused by your reliance on information contained in this publication. Please contact
your MNP representative for additional advice/guidance on a specific situation. © MNP LLP 2014. All Rights Reserved.