IAS 38-INTANGIBLE ASSETS
Learning Objectives
Upon completion, you should be able to:
 Explain the nature and accounting treatment of internally
generated and purchased intangibles
 Distinguish between goodwill and other intangibles
 Describe the criteria for initial recognition and measurement
 Explain subsequent accounting treatment of goodwill
 Explain the principle of impairment test in relation to GW
 Define research and development expenditure according to
IAS 38
 Explain the requirement of IAS 38 for research and devt
 Discuss disclosure requirements of IAS 38
SW-COM401S
IAS 38- Objective
 Prescribe accounting treatment for Intangible
Assets not dealt with in other standards
 Deals with how to measure the carrying
amount of Intangible Assets
 Specified disclosures
SW-COM401S
IAS 38 - Scope
Shall apply in the accounting of IA except:
 IA within the scope of another standards
 Financial Assets under IFRS 9
 Exploration and evaluation assets (extractive industries)
 Expenditure on the devt and extraction of minerals, oil
and gas, etc
SW-COM401S
IAS 38 – Key Definitions
 IA - identifiable non-monetary asset without physical substance
 Research- original and planned investigation undertaken with
the prospects of gaining new scientific and technical knowledge
and understanding
 Development - application of research findings or other
knowledge plan or design for the production of new or
substantially improved to materials, devices, products,
processes, systems or services before the start of commercial
production or use.
SW-COM401S
IAS 38-Intangible Assets
Examples
May be acquired by










 by separate purchase
computer software
patents
copyrights
motion picture films
customer lists
mortgage servicing rights
licenses
import quotas
franchises
customer and supplier
relationships
 marketing rights
SW-COM401S
 as part of a business
combination
 by a government grant
 by exchange of assets
 by self-creation (internal
generation)
IAS 38 – Intangible Assets
Critical Attributes of Intangible Assets:
 Identifiable
 Is capable of being separated from the entity and
sold, transferred, licensed, or rented either
individually or in combination with a related
contract, asset, or liability; or
 Arises from contractual or other legal rights,
regardless of whether those rights are
transferable or separable from the entity or other
rights or obligations
SW-COM401S
IAS 38 – Intangible Assets
For Recognition, entity must demonstrate that the item:
 Meets IA definition
 Meets asset recognition criteria
SW-COM401S
IAS 38-Initial recognition
once criteria are met, initial recognition is at cost
 Cost as determined earlier under IAS 16
 If cost cannot be determined reliably, expense
 FV if acquired in a business combination
 FV is easier in an existing active market
 if expenditure does not meet criteria, add to goodwill on
acquisition
 Does not allow reinstatement of expenditure written off
SW-COM401S
IAS 38-Internally Generated Intangibles
 Generally internally generated intangibles are not
recognised as assets.
 These include goodwill, brands, masthead, publishing
titles, customer list
 No intangible asset arising from research shall be
recognised. Expenditure on research shall be
recognised as an expense when it is incurred
SW-COM401S
IAS 38-Internally Generated Intangibles
 An intangible asset arising from development, or from the
development phase of an internal project, should be recorded only if
an undertaking can demonstrate all of the following:
(i)
the technical feasibility of completing the asset, so that it will be
available for use or sale
(ii) its intention to complete the asset and use or sell it
(iii) its ability to use, or sell, the asset
(iv) how the asset will generate future benefits.
(v) the resources to complete the development and to use, or sell,
the asset
(vi) its ability to measure the expenditure on the asset.
SW-COM401S
IAS 38 – Development Expenditure
(i)
(ii)
(iii)
(iv)
(v)
Probable future economic benefits from IA
Intension to complete the asset and use or sell it
Resources available to complete the development
Ability to use or sell the IA
Technical feasibility of completing the IA so that it will be
available for use or sale
(vi) Expenditure its ability to measure the expenditure on the asset.
PIRATE
SW-COM401S
IAS 38
Subsequent measurement:
 Cost Model
 Revaluation Model
FV with reference to active market
 Homogeneous
 Willing buyers and sellers anytime
 Prices available to the public
SW-COM401S
IAS 38-Amortisation
Finite Useful life – limit to benefits
 Amortise over life, normally SL method
 No residual value
 Charge to income statement (or cost of an asset)
 Amortisation period reviewed annually
Indefinite useful life – no foreseeable limit to benefit
 Should not be amortised
 Test for impairment annually (IAS 36)
SW-COM401S
IAS 38-Intangible Assets and Goodwill
Purchased Goodwill
 Arises when one business acquires another
 Includes goodwill arising on consolidation
 Recognised in the financial statements
Non-purchased Goodwill
 Also known as inherent goodwill
 Has no identifiable value
 Is not recognised in the financial statements
SW-COM401S