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Financial Reporting · Intangible assets

IAS 38 Measurement, Amortisation and Impairment of Intangibles

Updated 11 October 2026 · Fact-checked

Under IAS 38, an intangible is measured at cost, then carried at cost less amortisation and impairment, or revalued if an active market exists. Finite-life assets are amortised over their useful life. Indefinite-life assets are not amortised but are tested for impairment every year under IAS 36.

Understand Measurement, Amortisation and Impairment of Intangibles

An intangible asset is an identifiable non-monetary asset without physical substance. Once it meets the recognition rules, you must measure it. Start with cost. For a purchased asset, cost is the purchase price plus import duties and non-refundable taxes, plus directly attributable costs of preparing it for use, less trade discounts. For a development project, cost is only the spending incurred from the date the capitalisation criteria are first met.

After initial recognition, IAS 38 gives you a choice of policy. The cost model carries the asset at cost less accumulated amortisation and accumulated impairment losses. The revaluation model carries it at fair value at the revaluation date less later amortisation and impairment. Revaluation is allowed only if fair value is measured by reference to an active market. That means items traded are homogeneous, willing buyers and sellers can normally be found at any time, and prices are publicly available. Brands, patents and most licences rarely have such a market. Some assets like taxi licences or fishing quotas may.

Next, assess useful life. A finite life means you can estimate a period or number of units over which the asset gives benefits. An indefinite life means there is no foreseeable limit to the period of net cash inflows. Indefinite does not mean infinite. A finite-life asset is amortised on a systematic basis over its useful life, starting when it is available for use. The residual value is assumed to be zero unless a third party has committed to buy it or an active market exists and will probably exist at the end of the life. Review the useful life and the method at least at each year end. A change is a change in estimate under IAS 8 and applies prospectively.

An indefinite-life intangible is not amortised. It is tested for impairment every year, and whenever there is an indication of impairment, by comparing carrying amount with recoverable amount under IAS 36. Each year you also review whether the indefinite-life assessment still holds. If it does not, change to finite life and amortise. Internally developed intangibles not yet in use are also tested annually.

Under the revaluation model, a surplus goes to other comprehensive income and revaluation surplus. A deficit goes to profit or loss, except to the extent it reverses an earlier surplus on the same asset. If you revalue one intangible, you revalue the whole class unless there is no active market for some of the assets in that class. Derecognise an intangible on disposal or when no future benefits are expected. The gain or loss is net proceeds less carrying amount, shown in profit or loss and not as revenue.

Key rules to remember

Initial cost (purchased)
Purchase price + import duties + non-refundable taxes + directly attributable costs − trade discounts and rebates
Do not include training, admin overheads or initial operating losses.
Cost model carrying amount
Cost − accumulated amortisation − accumulated impairment losses
Amortise from the date the asset is available for use.
Straight-line amortisation
Annual amortisation = (Cost − residual value) ÷ useful life
Residual value is normally nil for intangibles. Time-apportion in the first and last years if needed.
Revaluation model carrying amount
Fair value at revaluation date − later accumulated amortisation − later impairment losses
Requires an active market. Revalue the whole class, and keep valuations up to date.
Revaluation surplus or deficit
Surplus or deficit = Fair value − carrying amount
Surplus to OCI. Deficit to profit or loss, unless it reverses an earlier surplus on the same asset, which is then charged to OCI against the surplus.
Indefinite life rule
No amortisation. Annual impairment test: carrying amount vs recoverable amount
Also review annually whether indefinite life is still appropriate.
Derecognition
Gain or loss = Net disposal proceeds − carrying amount
Recognise in profit or loss. Not presented as revenue.

How to solve Measurement, Amortisation and Impairment of Intangibles questions

Use this order for any IAS 38 measurement, amortisation or impairment question.

  1. 1Work out the cost to capitalise. Include only purchase price and directly attributable costs, or development costs from the date the criteria are met.
  2. 2Decide the useful life: finite or indefinite. Note the date the asset is available for use.
  3. 3If finite, calculate amortisation using the stated method and a nil residual value unless told otherwise. Time-apportion for part years.
  4. 4Compute the carrying amount at the reporting date: cost less accumulated amortisation.
  5. 5If the revaluation model is used, check that an active market exists. Compare fair value with carrying amount, and post the surplus to OCI or the deficit to profit or loss as the rules require.
  6. 6If the asset has an indefinite life, or there is an impairment indicator, compare carrying amount with recoverable amount, which is the higher of fair value less costs of disposal and value in use. Charge any loss.
  7. 7Post the journal entries and state the amounts for the statement of profit or loss and the statement of financial position.
  8. 8If asked, add the disclosure or derecognition point: policy, useful lives, reconciliation of carrying amount, or gain or loss on disposal.

Quickest way: Four-line carrying amount check

When to use it: Use this for Section A and OT case questions that ask for a carrying amount or a profit or loss charge.

  1. Write the cost to capitalise. Drop anything not directly attributable.
  2. Divide by the useful life in years and multiply by the months used ÷ 12 if it is a part year.
  3. Subtract the amortisation from cost. If the asset is impaired, cap the carrying amount at recoverable amount.
  4. Check the four options. Eliminate any that amortise an indefinite-life asset or take the revaluation surplus to profit or loss.

Common mistakes in Measurement, Amortisation and Impairment of Intangibles

  • Amortising an indefinite-life intangible

    Students treat all intangibles like depreciable assets.

    Fix: No amortisation if the life is indefinite. Test for impairment every year instead.

  • Revaluing a brand or patent without an active market

    Students forget that the revaluation model has a strict condition.

    Fix: Check for an active market first. If there is none, you must use the cost model.

  • Starting amortisation on the acquisition date instead of the date available for use

    Students rely on the purchase date in the question.

    Fix: Amortisation begins when the asset is ready to be used in the manner intended by management.

  • Taking a revaluation deficit straight to profit or loss

    Students forget there may be an existing surplus on the same asset.

    Fix: Charge the deficit against that asset's revaluation surplus first. Only the excess goes to profit or loss.

  • Including the full pre-criteria development spending in cost

    Students add all project costs together.

    Fix: Capitalise only costs from the date all the IAS 38 criteria are met. Costs before that date stay expensed and are not reinstated.

  • Treating a change in useful life as a prior-period error

    Students restate earlier years.

    Fix: It is a change in estimate. Spread the remaining carrying amount over the revised remaining life from the date of change.

Worked examples

Example 1

On 1 April 20X1 Zeta bought a licence for ₹12,00,000 and paid ₹1,00,000 in legal fees to transfer it. It also incurred ₹50,000 in staff training. The licence lasts 5 years, is available for use immediately and has no residual value. Zeta uses straight-line amortisation with a time-apportioned charge. Calculate the carrying amount at 31 December 20X1.

Show the solution
  1. Cost = ₹12,00,000 + ₹1,00,000 legal fees = ₹13,00,000. Training is expensed.
  2. Annual amortisation = ₹13,00,000 ÷ 5 = ₹2,60,000.
  3. Period of use to 31 December 20X1 = 9 months.
  4. Amortisation = ₹2,60,000 × 9 ÷ 12 = ₹1,95,000.
  5. Carrying amount = ₹13,00,000 − ₹1,95,000 = ₹11,05,000.

Answer: Carrying amount at 31 December 20X1 is ₹11,05,000. The ₹50,000 training cost is charged to profit or loss.

Example 2

Delta holds a fishing quota acquired for ₹8,00,000 on 1 January 20X1 with an indefinite life. The quota is traded in an active market. At 31 December 20X1, its fair value is ₹9,50,000. At 31 December 20X2, its fair value is ₹8,70,000. Delta uses the revaluation model. Show the accounting for both years.

Show the solution
  1. The asset has an indefinite life, so no amortisation is charged.
  2. At 31 December 20X1: surplus = ₹9,50,000 − ₹8,00,000 = ₹1,50,000.
  3. Dr Intangible asset ₹1,50,000, Cr Other comprehensive income (revaluation surplus) ₹1,50,000.
  4. At 31 December 20X2: deficit = ₹9,50,000 − ₹8,70,000 = ₹80,000.
  5. A surplus of ₹1,50,000 exists on this asset, so the deficit is charged to OCI and reduces the revaluation surplus to ₹70,000.
  6. Dr Other comprehensive income (revaluation surplus) ₹80,000, Cr Intangible asset ₹80,000.
  7. Carrying amount at 31 December 20X2 = ₹8,70,000. Nothing goes to profit or loss from the revaluation. Delta should also review annually for impairment and whether the indefinite life remains appropriate.

Answer: Year 1: ₹1,50,000 credited to the revaluation surplus via OCI. Year 2: ₹80,000 debited against the surplus, leaving ₹70,000. The carrying amount is ₹8,70,000, with no profit or loss effect from the revaluations.

Exam tips

  • Read the question for the words 'active market'. If you are not told one exists, the cost model is the safe answer for brands and patents.
  • In part-year questions, count months from the date the asset is available for use, not the date of purchase.
  • For OT questions, check which option wrongly amortises an indefinite-life asset or wrongly credits a deficit to equity. Remove them first.
  • In Section C, show the cost build-up, the amortisation working and the journal separately so you earn method marks even if one number is wrong.
  • If the question mentions a market downturn or technology change, think impairment and a review of useful life.

Practice questions from Intangible assets

Measurement, Amortisation and Impairment of Intangibles in other exams

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

Measurement, Amortisation and Impairment of Intangibles: frequently asked questions

What is the difference between finite and indefinite useful life intangibles?

A finite-life intangible has a foreseeable limit to its benefits, so you amortise it over that life. An indefinite-life intangible has no foreseeable limit to net cash inflows. You do not amortise it, but you test it for impairment every year.

Can I use the revaluation model for any intangible asset?

No. IAS 38 allows it only if fair value is measured by reference to an active market. Such markets are uncommon for intangibles, so most entities use the cost model.

How do I calculate amortisation of development costs?

Capitalise the costs from the date the recognition criteria are met. Start amortising when the product is available for use. Then divide the capitalised cost by the expected useful life, usually on a straight-line basis, and time-apportion the first year.

Is a change in amortisation method or useful life a prior-period error?

No. IAS 38 treats it as a change in accounting estimate under IAS 8. You apply it prospectively, spreading the remaining carrying amount over the revised remaining life.

How is a gain on disposal of an intangible shown?

The gain or loss is net disposal proceeds less carrying amount. It is recognised in profit or loss. It is not classified as revenue.