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Financial Accounting · Disclosure notes

IAS 38 Disclosure Requirements and Other Asset Notes

Updated 11 October 2026 · Fact-checked

Disclosure notes give users detail that the statement of financial position cannot show. For intangible assets (IAS 38) you show a reconciliation of carrying amount: cost, additions, amortisation and impairment for the year. For inventories (IAS 2) show the policy and categories. For receivables show trade receivables net of the allowance.

Understand Intangible Assets and Other Asset Disclosures

A statement of financial position shows one line for intangible assets. A user cannot tell what is inside that line, how it was built up or how fast it is written off. Notes fix this. They are part of the financial statements and the exam expects you to prepare or read them.

An intangible asset is an identifiable non-monetary asset without physical substance, such as a licence, a patent, software or capitalised development costs. Under IAS 38 research costs are always expensed. Development costs are capitalised only when the six criteria are met (technical feasibility, intention to complete, ability to use or sell, probable future benefits, adequate resources, reliable measurement). IAS 38 prohibits recognising internally generated goodwill, brands, mastheads and customer lists. Goodwill that arises on an acquisition is not an IAS 38 asset. It is recognised under IFRS 3, is not amortised, and is tested for impairment under IAS 36.

The core disclosure is a reconciliation of the carrying amount from the start to the end of the year. You show cost, accumulated amortisation and carrying amount, then movements: additions, amortisation charge, and disposals. You also state the useful lives or amortisation rates and the amortisation method. Finite-life assets are amortised over their useful life, usually straight-line in the exam. Also disclose the total research and development expenditure recognised as an expense in the period.

For inventories, IAS 2 requires you to disclose the accounting policy (lower of cost and net realisable value, and the cost formula such as FIFO or AVCO), the total carrying amount, and the amount in classifications such as raw materials, work in progress and finished goods. Also disclose the amount of inventories recognised as an expense (cost of sales) and any write-down.

For receivables, the statement of financial position shows trade receivables net of the allowance for receivables. A note usually shows gross trade receivables, less the allowance, plus prepayments or other receivables if relevant. In Applied Knowledge you are tested on the figures and layout, not on detailed expected credit loss modelling.

Key formulas to remember

Intangible asset carrying amount
Carrying amount = Cost − Accumulated amortisation (and impairment)
Show cost, amortisation and carrying amount in the note, at both year ends.
Straight-line amortisation
Annual charge = (Cost − Residual value) ÷ Useful life
Residual value is usually nil for intangibles. Start amortising when the asset is ready for use.
Closing balance reconciliation
Opening carrying amount + Additions − Disposals − Amortisation − Impairment = Closing carrying amount
Use only the items that apply in the question. Check the total agrees to the statement of financial position.
Development cost rule
Research = expense. Development = capitalise only if all IAS 38 criteria are met
If criteria are not met, expense it all in profit or loss.
Inventory measurement
Inventory = Lower of cost and net realisable value
Disclose the policy and the carrying amount by classification.
Net receivables
Trade receivables (net) = Gross receivables − Allowance for receivables
Irrecoverable debts are written off first. The allowance applies to the remaining balance.

How to solve Intangible Assets and Other Asset Disclosures questions

Use this method for any question that asks you to prepare or interpret a disclosure note on intangibles, inventories or receivables.

  1. 1Identify which note is required and which standard governs it: IAS 38 for intangibles, IAS 2 for inventories, IAS 1 presentation for receivables.
  2. 2List the opening balances: cost and accumulated amortisation at the start of the year.
  3. 3Decide whether any development spend meets the capitalisation criteria. Expense research and any development that fails them.
  4. 4Calculate the amortisation charge for the year, adjusting for the date when the asset became ready for use.
  5. 5Build the note in columns: cost, accumulated amortisation, carrying amount. Include additions and the charge as movements.
  6. 6For inventories and receivables, show gross amounts, deductions (write-downs or allowance) and the net figure.
  7. 7Cross-check the closing carrying amounts to the statement of financial position and the charge to profit or loss.
  8. 8For policy or wording questions, state the policy and basis plainly, such as the useful life or the cost formula.

Quickest way: Roll-forward in three lines

When to use it: Use for number-entry or multiple-choice questions asking for a closing carrying amount or a charge.

  1. Write: opening carrying amount + additions − amortisation = closing.
  2. Work out amortisation by the straight-line formula, adjusting for part years.
  3. Check any development cost against the criteria before adding it. If it fails, it goes to expenses, not the asset.
  4. For receivables, deduct only the allowance from gross receivables. For inventories, take the lower of cost and NRV item by item.

Common mistakes in Intangible Assets and Other Asset Disclosures

  • Capitalising research costs.

    Students see 'development of a new product' and treat all the spend as an asset.

    Fix: Research is always an expense. Only development spend after the criteria are met is capitalised.

  • Amortising from the date of purchase instead of when the asset is ready for use.

    Students copy the rule for tangible assets in a rush.

    Fix: Read the dates. Amortisation begins when the asset is available for use, not when it is bought or when spending starts.

  • Capitalising internally generated goodwill or brands.

    Students think any valuable item is an asset.

    Fix: IAS 38 prohibits recognising internally generated goodwill, brands, mastheads and customer lists. Goodwill arising on acquisition is recognised under IFRS 3 and is not amortised but tested for impairment under IAS 36.

  • Showing only the closing balance in the note.

    Students forget that the note is a reconciliation of movements.

    Fix: Reconcile the opening carrying amount to the closing carrying amount. Show additions, amortisation and any other movements in between.

  • Deducting the allowance for receivables before writing off irrecoverable debts.

    The order of workings is mixed up.

    Fix: Write off irrecoverable debts first, then calculate the allowance on the remaining receivables.

  • Valuing inventory at selling price or above cost.

    Students forget the lower of cost and NRV rule.

    Fix: Compare cost with NRV for each item and use the lower.

Worked examples

Example 1

At 1 January, Delta Co had a licence with cost $120,000 and accumulated amortisation $48,000. No additions or disposals occurred in the year. The licence is amortised straight-line over 10 years with nil residual value. What is the carrying amount at 31 December?

Show the solution
  1. Annual amortisation = $120,000 ÷ 10 = $12,000.
  2. Opening carrying amount = $120,000 − $48,000 = $72,000.
  3. Closing carrying amount = $72,000 − $12,000 = $60,000.
  4. Check: accumulated amortisation at year end = $48,000 + $12,000 = $60,000, and $120,000 − $60,000 = $60,000.

Answer: $60,000

Example 2

In the year ended 31 December, Echo Co spent $40,000 on research and then $90,000 on development that met all IAS 38 criteria. Both amounts were incurred in this same year. The development was completed and ready for use on 1 October, with a useful life of 5 years. Calculate the total expense in profit or loss for these items for the year and the closing carrying amount of the development asset.

Show the solution
  1. Research is expensed: $40,000, incurred in the current year.
  2. Development of $90,000, all spent in the current year, is capitalised because the criteria are met.
  3. Annual amortisation = $90,000 ÷ 5 = $18,000.
  4. Amortisation for 3 months (October to December) = $18,000 × 3 ÷ 12 = $4,500.
  5. Total expense = $40,000 + $4,500 = $44,500.
  6. Closing carrying amount = $90,000 − $4,500 = $85,500.

Answer: Expense of $44,500; carrying amount of development asset $85,500

Exam tips

  • Always check whether spend is research or development before anything else. This decides if a number goes in the note at all.
  • Look at dates. Part-year amortisation is a favourite trap in number-entry questions.
  • In multiple response questions, read how many options to select and test each statement against IAS 38 rules.
  • Check that the note's closing figures agree to the statement of financial position. A mismatch signals an error.
  • Use plain wording for policy questions: name the standard, the basis and the useful life.

Practice questions from Disclosure notes

Intangible Assets and Other Asset Disclosures in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Intangible Assets and Other Asset Disclosures: frequently asked questions

What must a note on intangible assets show under IAS 38?

It must show a reconciliation of carrying amount between the start and end of the year. This includes additions, amortisation and any disposals or impairment. You also disclose useful lives or amortisation rates and the method used.

Do I disclose development costs separately?

Yes, in practice you show internally generated development costs as a class of intangible assets, separate from purchased items. You also disclose the total research and development expense recognised in the period.

What do I disclose for inventories?

State the accounting policy, including the cost formula, and the total carrying amount. Break it down into classes such as raw materials, work in progress and finished goods. Also disclose any write-down to net realisable value.

How are receivables shown in the notes?

Show gross trade receivables, deduct the allowance for receivables and present the net figure. Other receivables and prepayments are listed separately. The total must agree to the statement of financial position.