Prescribe the accounting treatment for intangible assets that are not specifically dealt with in another IFRS standard.
Requires an entity to recognize an intangible asset if, and only if, specified criteria are met.
Specifies how to measure the carrying amount of intangible assets.
Requires specified disclosures about intangible assets.
Applies to all intangible assets, except for those specifically excluded.
IAS 38 does NOT apply to:
Financial assets (defined in IAS 32, covered by IFRS 9).
Exploration and evaluation assets (IFRS 6).
Expenditure on the development and extraction of minerals, oil, natural gas, and similar non-regenerative resources.
Intangible assets arising from insurers' contractual rights under insurance contracts (IFRS 17).
Goodwill acquired in a business combination (IFRS 3).
Deferred tax assets (IAS 12).
Assets arising from employee benefits (IAS 19).
Intangible assets classified as held for sale (IFRS 5).
If another standard prescribes accounting for a specific type of intangible asset, apply that standard instead of IAS 38.
It is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; AND
The cost of the asset can be measured reliably.
These criteria apply to both externally acquired and internally generated intangible assets (though internally generated assets face stricter hurdles, especially regarding reliable cost measurement and identifiability).
To assess whether an internally generated intangible asset meets the recognition criteria, IAS 38 classifies the generation process into two phases: Research Phase and Development Phase.
Research Phase:
Expenditure on research (or on the research phase of an internal project) shall be recognized as an expense when it is incurred.
Cannot recognize an intangible asset arising from research.
Development Phase:
An intangible asset arising from development (or the development phase) shall be recognized if, and only if, an entity can demonstrate ALL of the following (PIRATE criteria often used as mnemonic):
(P) Probable future economic benefits: How the asset will generate probable future economic benefits (demonstrating market existence or internal utility).
(I) Intention to complete: Intention to complete the intangible asset and use or sell it.
(R) Resources available: Availability of adequate technical, financial and other resources to complete the development and to use or sell the asset.
(A) Ability to use or sell: Ability to use or sell the intangible asset.
(T) Technical feasibility: Technical feasibility of completing the intangible asset so that it will be available for use or sale.
(E) Expenditure measurable reliably: Ability to measure reliably the expenditure attributable to the intangible asset during its development.
If an entity cannot distinguish the research phase from the development phase, it treats the expenditure as if incurred in the research phase only (i.e., expensed).
Items NEVER Recognized as Intangible Assets (if internally generated):
Internally generated goodwill.
Internally generated brands, mastheads, publishing titles, customer lists, and items similar in substance.
Expenditure on these items cannot be distinguished from the cost of developing the business as a whole and is expensed.
Start-up costs, training costs, advertising/promotional costs, relocation/reorganisation costs are also expensed.
Initial Measurement:
An intangible asset shall be measured initially at cost.
Purchase price (including import duties, non-refundable taxes, less discounts/rebates) for separate acquisition.
Fair value at acquisition date for assets acquired in a business combination (per IFRS 3).
Fair value for assets acquired via government grant (IAS 20) or nominal amount + direct costs.
Fair value (or carrying amount of asset given up) for assets acquired in an exchange of assets.
Sum of expenditures incurred from the date the recognition criteria are first met for internally generated assets (development costs).
Includes any directly attributable cost of preparing the asset for its intended use (e.g., professional fees).
Subsequent Measurement:
After initial recognition, an entity chooses either the cost model or the revaluation model as its accounting policy for each class of intangible assets.
Cost Model: Carry asset at cost less accumulated amortization and accumulated impairment losses.
Revaluation Model: Carry asset at fair value at revaluation date less subsequent amortization and impairment losses.
This model can only be used if fair value can be determined by reference to an active market for that type of intangible asset.
Active markets are rare for most intangible assets (e.g., brands, patents). Common examples where possible: taxi licences, fishing quotas.
Revaluations must be sufficiently regular. Treatment of surplus/deficit follows IAS 16 rules (OCI/P&L).
Assess whether the useful life of an intangible asset is finite or indefinite.
Finite Useful Life:
Depreciable amount (Cost - Residual Value) is allocated on a systematic basis over its useful life (amortization).
Amortization begins when the asset is available for use.
Amortization ceases at the earlier of classification as held for sale (IFRS 5) or derecognition.
Amortization method, residual value (usually assumed zero unless commitment to purchase or active market exists), and useful life reviewed at least annually. Changes treated prospectively (IAS 8).
Indefinite Useful Life:
An intangible asset with an indefinite useful life is NOT amortized.
Useful life is reviewed each period to determine if events/circumstances still support indefinite life assessment. If no longer indefinite, change prospectively (IAS 8).
Tested for impairment annually and whenever indication of impairment exists (IAS 36).
"Indefinite" means no foreseeable limit to the period over which the asset is expected to generate net cash inflows. It does not mean infinite.
Amortization Method:
Method should reflect the pattern in which the asset's future economic benefits are expected to be consumed.
Methods include straight-line, diminishing balance, units of production.
If the consumption pattern cannot be determined reliably, use the straight-line method.
An entity applies IAS 36 *Impairment of Assets* to determine whether an intangible asset is impaired and to account for any impairment loss.
Impairment loss = Carrying Amount - Recoverable Amount (higher of FV less costs of disposal and Value in Use).
Impairment testing frequency:
Assets with indefinite useful lives: Test annually and whenever impairment indicated.
Assets not yet available for use: Test annually and whenever impairment indicated.
Assets with finite useful lives: Test whenever there is an indication of impairment.
When to Derecognize Carrying Amount:
On disposal (e.g., sale, entering into finance lease, donation); or
When no future economic benefits are expected from its use or disposal.
Gain or Loss Recognition:
Gain or loss = Net disposal proceeds - Carrying amount.
Recognized in profit or loss when the asset is derecognized (unless IFRS 16 requires different treatment for sale & leaseback). Gains not classified as revenue.
If revaluation model used, any related revaluation surplus in equity may be transferred directly to retained earnings on derecognition.
For each class of intangible assets (distinguishing between internally generated and other):
Whether useful lives are indefinite or finite; if finite, the useful lives or amortization rates.
Amortization methods used for finite life assets.
Gross carrying amount and accumulated amortization (aggregated with impairment losses) at beginning and end of period.
Line item(s) of the statement of comprehensive income where amortization is included.
Reconciliation of carrying amount at beginning and end, showing: Additions (separating internal development, acquisitions, business combinations), Assets held for sale, Retirements/disposals, Revaluations, Impairments recognized/reversed (in P&L and OCI), Amortization, Exchange differences, Other changes.
For indefinite life assets: Carrying amount and reasons supporting indefinite assessment.
If revaluation model used: Details similar to IAS 16 (date, valuer, methods, cost model equivalent, surplus movement).
Aggregate amount of research and development expenditure recognized as an expense.
Description, carrying amount, remaining amortization period of any individually material intangible asset.
Assets acquired by way of government grant.
Restrictions on title and assets pledged as security.
Contractual commitments for acquisition.
Determining if an item meets the definition (identifiable, control, future benefits) and recognition criteria (probable benefits, reliable cost).
Distinguishing between research and development phases for internal projects. Assessing if the 6 development capitalization criteria are met.
Assessing the useful life as finite or indefinite. Estimating the length of finite useful lives and residual values.
Selecting an appropriate amortization method that reflects the pattern of consumption of benefits.
Estimating the recoverable amount for impairment testing (value in use / fair value less costs of disposal).
Evaluating whether an active market exists to allow use of the revaluation model. Determining fair value reliably.
