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CA Final · Financial Reporting

Ind AS 38 Intangible Assets: Recognition, Measurement and Amortisation

Ind AS 38 governs intangible assets: identifiable non-monetary assets without physical substance. You recognise one only if it is identifiable, controlled and gives probable future economic benefits, and its cost is measurable reliably. Then you measure cost, expense research, capitalise development when all criteria are met, amortise over useful life, and test for impairment.

What this chapter covers

Ind AS 38 deals with identifiable non-monetary assets without physical substance, such as software, licences, patents, franchises and brands. The chapter has one central question: should this expenditure be an asset or an expense? Everything else follows from that. You work through the definition, the recognition criteria, the cost on initial measurement, and then the later accounting.

The chapter splits into three routes to an intangible asset: separate acquisition, acquisition in a business combination, and internal generation. Internal generation has the sharpest rules. Research is always expensed. Development is capitalised only when the standard's conditions are all demonstrated. Certain internally generated items, such as brands, mastheads, customer lists and goodwill, cannot be recognised. Web site costs apply the same logic to a common business situation.

The chapter links to many other parts of the paper. Ind AS 103 covers intangibles and goodwill acquired in a business combination. Ind AS 36 covers impairment, including annual testing of intangibles not yet available for use and those with indefinite life. Ind AS 12 brings deferred tax on differences. Ind AS 8 applies to changes in estimates of useful life and amortisation method. Questions often mix these, so you must know where Ind AS 38 stops and another standard starts.

This chapter is compact and highly testable through short case scenarios. A single scenario can ask whether costs are research or development, when capitalisation starts, what to include in cost, how to amortise, or how to treat a change in useful life. These are rule-and-apply questions, so well-prepared students score steadily. The chapter also supports other questions on business combinations, impairment and disclosure, which raises its value beyond its own size. It is a good place to build accuracy, because the answers depend on conditions you can learn and apply.

Ind AS 38 Intangible Assets: topics in the order to study them

  1. 1Ind AS 38 Scope, Definition and Recognition CriteriaStart here because identifiability, control, future economic benefits and the recognition tests drive every later answer.
  2. 2Initial Measurement and Separate vs Internal GenerationNext, learn what goes into cost and how acquisition routes differ, especially research versus development for internal generation.
  3. 3Web Site Costs (Appendix A to Ind AS 38, based on SIC-32)Study it after internal generation, since it applies the same development-phase logic to a specific, frequently tested situation.
  4. 4Subsequent Measurement, Amortisation and Indefinite Useful LifeOnce recognition and cost are clear, move to cost versus revaluation model, amortisation, residual value and indefinite life.
  5. 5Derecognition and DisclosuresFinish with derecognition gains or losses and the disclosure points, which are easier to recall once the core is firm.

How to prepare Ind AS 38 Intangible Assets

Treat this chapter as a decision flow, not a list of paragraphs. Your aim is to reach a clear asset-or-expense conclusion, then measure and amortise correctly.

  1. Learn the three tests of an intangible asset: identifiable, controlled, and future economic benefits. Practise applying them to short scenarios.
  2. Write the recognition criteria on one page, then separate them from the extra conditions required for capitalising development.
  3. Practise classifying costs into research, development, and general expenditure. Mark the exact point from which capitalisation can begin, and remember that earlier expense is not reinstated.
  4. Solve cost computations for separate acquisition: include purchase price, import duties and non-refundable taxes, less trade discounts, plus directly attributable costs. Exclude items such as general overheads and initial operating losses.
  5. Work web site cost cases by stage: planning, application and infrastructure development, graphical design, content development, and operating. Decide what is capitalised and what is expensed.
  6. Practise amortisation problems: start when the asset is available for use, pick a method reflecting benefit pattern, and treat revisions as changes in estimate. Link impairment testing to Ind AS 36.
  7. Close with derecognition gain or loss and the disclosure headings. Then attempt past case-scenario MCQs and written questions under time.

Common mistakes in Ind AS 38 Intangible Assets

  • Capitalising all costs of a project once it looks promising

    Fix: Demonstrate every condition, including technical feasibility, intention and ability to complete and use or sell, probable benefits, resources, and reliable measurement. Capitalise only from the date all are met.

  • Reversing earlier expensed costs into the asset after criteria are met

    Fix: Cost starts from the date the criteria are first met. Costs already expensed stay expensed.

  • Amortising an intangible asset with an indefinite useful life

    Fix: Do not amortise it. Test for impairment annually and whenever there is an indication, and review whether the indefinite-life assessment still holds.

  • Treating web site costs as wholly asset or wholly expense

    Fix: Split costs by stage. Planning and operating costs are generally expensed, while qualifying development-stage costs may be capitalised if the criteria are met.

  • Including general overheads, training and start-up losses in cost

    Fix: Include only directly attributable costs of preparing the asset for its intended use. Exclude administration overheads, training costs and initial operating losses.

  • Mixing up changes in estimate with errors or policy changes

    Fix: Treat a revised useful life, residual value or method as a change in estimate under Ind AS 8, applied prospectively. Remember that the residual value of an intangible is presumed to be zero unless there is a third-party purchase commitment or an active market for the asset.

Last-day revision: Ind AS 38 Intangible Assets

  • An intangible asset is an identifiable non-monetary asset without physical substance.
  • Recognition needs probable future economic benefits and reliably measurable cost.
  • Identifiable means separable, or arising from contractual or other legal rights.
  • Research is always expensed; development is capitalised only if all the standard's conditions are met.
  • Internally generated brands, mastheads, publishing titles, customer lists and goodwill are not recognised as assets.
  • Expenditure once expensed is not later capitalised as part of an asset's cost.
  • Cost of a separately acquired intangible is the purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates, plus directly attributable costs.
  • Amortisation begins when the asset is available for use; a finite-life asset is amortised over its useful life.
  • The residual value of a finite-life intangible is presumed to be zero, unless a third party has committed to buy the asset at the end of its useful life, or there is an active market for it from which the residual value can be determined and that market is probable to exist at that time.
  • An intangible with an indefinite useful life is not amortised but is tested for impairment annually and when there are indications.
  • Review useful life and amortisation method at least at each financial year-end; changes are changes in estimate.
  • Revaluation is allowed only if an active market exists for the asset.
  • On derecognition, gain or loss is net disposal proceeds less carrying amount, recognised in profit or loss.

Ind AS 38 Intangible Assets practice questions

Ind AS 38 Intangible Assets in other exams

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

Ind AS 38 Intangible Assets: frequently asked questions

What are the recognition criteria in Ind AS 38?

An item must meet the definition of an intangible asset: identifiable, controlled by the entity and expected to give future economic benefits. It must also be probable that those benefits will flow, and the cost must be measurable reliably. If any condition fails, the expenditure is recognised as an expense.

How do I tell research from development?

Research is original, planned investigation to gain new knowledge. Development applies research findings to a plan or design before commercial production or use. If you cannot distinguish the two phases in a project, treat the expenditure as research.

Can an intangible asset be revalued under Ind AS 38?

Yes, but only where fair value can be determined by reference to an active market. Such markets are uncommon for intangibles. If one intangible is revalued, all other assets in its class are also revalued, unless there is no active market for them; an asset with no active market is carried at cost less accumulated amortisation and impairment.

Is goodwill covered by Ind AS 38?

Internally generated goodwill is not recognised as an asset. Goodwill acquired in a business combination is dealt with under Ind AS 103 and tested for impairment under Ind AS 36.

How should I prepare web site costs for the exam?

Learn the stage-wise treatment and practise short case scenarios. In your answer, state the stage, apply the development criteria, and give a clear conclusion on capitalise or expense.