Financial Reporting · Ind AS 38 Intangible Assets

Ind AS 38 Scope, Definition and Recognition Criteria

Updated 5 October 2026 · Fact-checked

Under Ind AS 38, an intangible asset is an identifiable non-monetary asset without physical substance. To solve a question, check scope first, then identifiability, control and future economic benefits. Finally apply the recognition criteria: probable future benefits and reliable measurement of cost. If any test fails, expense the item.

Understand Ind AS 38 Scope, Definition and Recognition Criteria

Ind AS 38 deals with assets you cannot touch: software, licences, patents, copyrights, franchises, customer lists, import quotas. It tells you when such an item goes on the balance sheet and when it is simply an expense.

The standard defines an intangible asset as an identifiable non-monetary asset without physical substance. Every word matters. It must be an asset, so it must be a resource controlled by the entity as a result of past events, from which future economic benefits are expected. It must be non-monetary, so receivables and cash are out. It must lack physical substance.

Identifiability is met in either of two ways. The item is separable, meaning it can be sold, transferred, licensed, rented or exchanged, alone or with a related contract, asset or liability. Or it arises from contractual or other legal rights, even if those rights are not transferable or separable from the entity. Goodwill generated internally fails this test, because it cannot be separated and does not arise from rights.

Control means you have the power to obtain the future benefits and to restrict others' access to them. Legal rights, such as a patent or copyright, usually give this. Skilled staff, training and customer relationships are normally not controlled, because the entity has no legal power over them. Future economic benefits can be revenue from products or services, cost savings, or other benefits from using the asset.

Identification is not enough for recognition. You recognise an intangible asset only if it is probable that expected future economic benefits will flow to the entity, and the cost can be measured reliably. Probability is judged using reasonable and supportable assumptions about economic conditions over the asset's life, with greater weight on external evidence. If an item meets the definition but not the recognition criteria, the spending is expensed when incurred.

Scope matters too. Ind AS 38 does not apply to intangible assets covered by another standard. Examples are intangibles held for sale in the ordinary course of business (Ind AS 2), deferred tax assets (Ind AS 12), leases within the scope of Ind AS 116, employee benefit assets (Ind AS 19), financial assets (Ind AS 32 and 109), deferred acquisition costs and intangible assets arising from an insurer's contractual rights under insurance contracts (Ind AS 104), non-current assets classified as held for sale (Ind AS 105), and the recognition and measurement of exploration and evaluation assets (Ind AS 106).

Goodwill needs care. Goodwill acquired in a business combination is governed by Ind AS 103 and is not treated as an Ind AS 38 intangible asset. Ind AS 38 does cover the other intangibles acquired in a business combination, such as a brand, a licence or a customer contract recognised separately from goodwill. It also covers internally generated goodwill, which it says must never be recognised as an asset.

Note that the lease exclusion is not total. Ind AS 38 does not apply to leases within the scope of Ind AS 116. But rights held by a lessee under licensing agreements for items such as motion picture films, video recordings, plays, manuscripts, patents and copyrights are within Ind AS 38, because Ind AS 116 itself excludes them from its scope. A lessee may, but need not, apply Ind AS 116 to leases of other intangible assets. Ind AS 38 also does not apply to expenditure on the exploration for, or development and extraction of, minerals, oil, natural gas and similar non-regenerative resources.

Key rules to remember

Definition of intangible asset: Intangible asset = identifiable + non-monetary + no physical substance + controlled + future economic benefits expected; All elements must be present. Missing any one means the item is not an intangible asset.
Identifiability test: Identifiable if separable OR arises from contractual or other legal rights; Only one limb is needed. Separable means capable of being sold, transferred, licensed, rented or exchanged.
Control test: Control = power to obtain future benefits + ability to restrict others' access; Usually shown by enforceable legal rights. Absence of legal rights makes control hard to demonstrate.
General recognition criteria: Recognise if (1) future economic benefits are probable AND (2) cost can be measured reliably; Both conditions must be met. Otherwise expense the cost when incurred.
Initial measurement of separately acquired asset: Cost = purchase price (net of trade discounts and rebates, plus import duties and non-refundable taxes) + directly attributable cost of preparing the asset for use; For a separately acquired asset the probability criterion is always taken as satisfied.

How to solve Ind AS 38 Scope, Definition and Recognition Criteria questions

Use the same filter for every question on whether an item is an intangible asset. Write the answer in provision, facts, conclusion form.

1Check scope. Ask whether another Ind AS governs the item (inventory, lease, financial asset, goodwill in a business combination, held for sale). If yes, Ind AS 38 does not apply.
2Check that the item is non-monetary and has no physical substance. Note that an intangible embedded in a physical item, such as software in a machine, may be part of the physical asset if it is integral to it.
3Test identifiability: is it separable, or does it arise from contractual or legal rights? Quote the fact that proves it.
4Test control: does the entity have legal rights or other power to obtain the benefits and restrict others' access?
5Test future economic benefits: revenue, cost savings or other benefits expected from using the item.
6Apply recognition: are the benefits probable and is cost reliably measurable? For internally generated items, also check the further rules for research and development and the items that can never be recognised.
7State the conclusion clearly: recognise as an intangible asset, or expense when incurred, citing the failed test.

Quickest way: Five-question filter

When to use it: For case-scenario MCQs and short written parts where you have two to three minutes.

Is it inside Ind AS 38 scope, or covered by another standard?
Is it identifiable (separable or legal right)?
Does the entity control it?
Are benefits probable and cost reliable?
If any answer is no, expense it. Name the failed test in one line.

Common mistakes in Ind AS 38 Scope, Definition and Recognition Criteria

Treating skilled workforce, training or customer loyalty as an intangible asset.
They clearly create value, so students assume they are assets.
Fix: Check control. Without legal rights or other power over the benefits, control is not shown and the item fails the definition. Expense the cost.
Saying identifiability needs both separability and legal rights.
Students merge the two limbs into one test.
Fix: Remember it is either or. A licence that cannot be sold but arises from legal rights is still identifiable.
Applying the probability test mechanically to a separately acquired asset.
Students apply the same test to every item without noting the difference.
Fix: For a separately acquired intangible, the price paid reflects expectations of probable benefits, so the probability criterion is regarded as always satisfied.
Applying Ind AS 38 to software embedded in a machine or to goodwill from an acquisition.
Students look at the nature of the item and ignore scope.
Fix: Start with scope. Integral software goes with the machine under Ind AS 16. Acquired goodwill is dealt with under Ind AS 103.
Recognising an item that meets the definition but fails the recognition criteria.
Students think definition equals recognition.
Fix: Definition is the first gate and recognition is the second. State both, and expense the cost if the second fails.

Worked examples

Example 1

Case: Zenith Ltd, an Ind AS company, trains 200 engineers at a cost of ₹40,00,000. Management expects the trained team to improve project profits for years. The engineers are free to leave at any time and have no lock-in agreement. Can Zenith recognise the ₹40,00,000 as an intangible asset?

Show the solution

Provision: an intangible asset must be identifiable and controlled by the entity, with future economic benefits expected. Ind AS 38 (para 69) also requires expenditure on training activities to be recognised as an expense when incurred.
Facts on identifiability: the skills sit with the individuals. They are not separable from the employees, and no contractual or legal right exists.
Facts on control: the engineers can leave at any time. Zenith has no legal power to obtain the benefits or to restrict others' access to them.
Result: the item fails identifiability and control, so the definition is not met, even though benefits are expected. The training cost is therefore expensed under para 69.

Answer: Zenith cannot recognise the ₹40,00,000 as an intangible asset. Under Ind AS 38 (para 69), expenditure on training is expensed when incurred, so it goes to the statement of profit and loss.

Example 2

Case: Orbit Ltd buys a 5-year exclusive licence from a regulator to operate a service in a region. The licence cannot be transferred to anyone else. The price is ₹2,50,00,000 and legal fees directly attributable to obtaining it are ₹5,00,000. Should Orbit recognise it, and at what cost?

Show the solution

Scope: a licence acquired for own use is not covered by another standard, so Ind AS 38 applies. It has no physical substance and is non-monetary.
Identifiability: it is not transferable, so separability is absent. It arises from a legal right granted by the regulator, so the contractual or legal rights limb is met.
Control: the exclusive legal right lets Orbit obtain the benefits and restrict others' access.
Future benefits: revenue from operating the service.
Recognition: the asset is separately acquired, so the probability criterion is taken as met. The cost is reliably measurable.
Cost = ₹2,50,00,000 + ₹5,00,000 = ₹2,55,00,000.

Answer: Orbit recognises the licence as an intangible asset at ₹2,55,00,000.

Exam tips

In case scenarios, quote the fact that proves or fails each test. Marks go to application, not to restating the definition.
Always state the order: scope, definition (identifiability, control, benefits), then recognition. Examiners follow this sequence.
Remember that identifiability is satisfied by separability or legal rights, not both. Many MCQ options test this.
Name the other Ind AS when an item is out of scope (Ind AS 2, 16, 103, 116 and so on). It shows you know the boundary.
Conclude in one line: recognise or expense. An answer without a conclusion loses marks.

Practice questions from Ind AS 38 Intangible Assets

Ind AS 38 Scope, Definition and Recognition Criteria 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 Scope, Definition and Recognition Criteria: frequently asked questions

What are the three core attributes of an intangible asset under Ind AS 38?

Identifiability, control over the resource, and the existence of future economic benefits. The item must also be non-monetary and have no physical substance. If any attribute is missing, the item is not an intangible asset.

Is a customer list always an intangible asset?

No. It depends on control and identifiability. A list that the entity can legally protect and sell or license may qualify. A group of customers with no legal protection or exchange ability usually lacks control.

What happens if an item meets the definition but fails the recognition criteria?

You do not recognise it as an asset. The expenditure is recognised as an expense when it is incurred.

Does Ind AS 38 apply to goodwill?

Goodwill acquired in a business combination is dealt with under Ind AS 103, not Ind AS 38. Internally generated goodwill is never recognised as an asset.