CMA Final · Corporate Financial Reporting

Intangible Assets (Ind AS 38) for CMA Final

Ind AS 38 sets out when an intangible asset can be recognised and how to measure it. An item must be identifiable, controlled by the entity and expected to give future economic benefits, and its cost must be measured reliably. Otherwise the spend is an expense. Solve questions by testing criteria first, then working out cost.

What this chapter covers

Ind AS 38 deals with assets that have no physical form, such as software, patents, licences, know-how and brands. The core question is always the same: does the item qualify as an intangible asset, and if so, what is its cost? If it does not qualify, the spend goes to profit or loss when incurred.

The chapter moves in a clear line. First you learn the definition and recognition criteria. Then you measure the asset on initial recognition, whether bought separately or created internally. Internal creation is the most tested area, because you must split the work into a research phase and a development phase. After that come subsequent measurement (cost or revaluation model), useful life, amortisation, impairment, and finally disposals and disclosures.

This chapter links to other parts of Corporate Financial Reporting. Impairment ties to Ind AS 36. Borrowing costs tie to Ind AS 23. Employee costs tie to Ind AS 19. Assets acquired in a business combination and goodwill connect to the business combination chapter. Held-for-sale assets connect to Ind AS 105. Learn the links, because a single case can use two standards.

Intangible assets give you both MCQs and numerical questions. The rules are compact, so a well-prepared student can score reliably. Typical questions ask you to decide which costs to capitalise, compute the carrying amount after amortisation, or apply the revaluation and impairment rules. A written answer rewards a clear recognition test followed by clean working. Many marks are lost on small conditions, not on hard calculations, so this chapter repays careful study.

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

1Ind AS 38 Scope, Definition and Recognition CriteriaEvery later rule depends on whether an item is an intangible asset at all: identifiability, control and future economic benefits.
2Initial Measurement and Separate AcquisitionCost on purchase is the simplest measurement case and builds the habit of listing what is included in cost.
3Internally Generated Intangibles and GoodwillThis is the most tested area. Learn the research and development split, the cost rules and why internally generated goodwill is not recognised.
4Subsequent Measurement: Cost and Revaluation ModelsOnce cost is clear, you can learn how the carrying amount is carried forward under each model.
5Useful Life, Amortisation and ImpairmentThis uses the carrying amount from the earlier topics and links to Ind AS 36 for the impairment test.
6Retirements, Disposals and DisclosuresThis closes the asset life cycle, so study it last, once amortisation and carrying amount are firm.

How to prepare Intangible Assets (Ind AS 38)

Work in the order of the asset's life: test it, measure it, carry it, write it down, and remove it. Practise numbers early, because most marks come from applying rules to a case.

Learn the three tests of the definition: identifiability, control over a resource and future economic benefits. Write one line on each in your own words.
Practise separate acquisition cost: purchase price plus directly attributable costs, and list what is excluded.
Master the research and development split. For any case, mark the date from which the recognition criteria are met, and capitalise only spend from that date.
Do the Ind AS 38 illustration on a new production process from the standard: spend before the criteria are met is expensed, and later spend is capitalised. Then redo it with your own figures.
Build a short table of cost model against revaluation model, with the treatment of gains and losses, and practise a two-year example.
Practise amortisation and impairment together: compute the carrying amount, compare it with the recoverable amount and book any loss.
Finish with disposal workings and the disclosure list, then attempt past MCQs on the whole chapter.

Common mistakes in Intangible Assets (Ind AS 38)

Capitalising all development-phase spend from the start of the project.
Fix: Find the date the criteria were met. Expense everything before it and capitalise only the spend after it.
Adding training costs, general overheads or initial operating losses to cost.
Fix: Keep the exclusion list in mind: general overheads (unless directly attributable), inefficiencies and initial losses, and training.
Capitalising spend on internally generated brands or customer lists.
Fix: Remember that such spend cannot be separated from developing the business as a whole, so it is expensed.
Reversing earlier expensed research or development costs once the criteria are later met.
Fix: Spend once expensed is not reinstated. Only spend from the qualifying date forward is added to cost.
Stopping amortisation when an asset is no longer in use.
Fix: Amortisation continues while idle, and stops only when fully amortised or classified as held for sale.
Computing impairment against the wrong figure, such as original cost.
Fix: Always compute the carrying amount before impairment first, then compare it with the recoverable amount.

Last-day revision: Intangible Assets (Ind AS 38)

An intangible asset needs identifiability, control over a resource and future economic benefits.
If an item fails the definition, the spend is expensed when incurred. If acquired in a business combination, it forms part of goodwill.
Internally generated assets are split into a research phase and a development phase.
Cost of an internally generated asset is spend from the date the recognition criteria are first met.
Spend already expensed cannot be reinstated later as part of cost.
Directly attributable costs include materials and services used, employee benefit costs, fees to register a legal right and amortisation of patents and licences used to create the asset.
Not part of cost: general overheads (unless directly attributable), identified inefficiencies and initial operating losses, and staff training costs.
Internally generated goodwill is never recognised, as it is not an identifiable resource that can be measured reliably at cost.
Subsequent spend on brands, mastheads, publishing titles, customer lists and similar items is always expensed.
Most subsequent spend only maintains benefits, so it is rarely capitalised.
Amortisation of a finite-life asset continues when it is idle, unless it is fully amortised or held for sale.
Impairment is tested under Ind AS 36: loss equals carrying amount minus recoverable amount.

Intangible Assets (Ind AS 38) practice questions

Intangible Assets (Ind AS 38) 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 (Ind AS 38): frequently asked questions

Is Intangible Assets (Ind AS 38) important for CMA Final?

Yes. It sits in Corporate Financial Reporting and can be tested in both the compulsory MCQs and the written questions. The rules are short and application-based, so good practice pays off.

What is the difference between research and development phases?

For internally generated assets, the standard classifies the work into a research phase and a development phase. Spend is capitalised only from the date the asset first meets the recognition criteria. In practice that point usually falls in the development phase, so early spend is expensed.

Can internally generated goodwill be shown in the balance sheet?

No. It is not an identifiable resource that is separable or arises from contractual or legal rights, and it cannot be measured reliably at cost. The spend is therefore expensed.

Do I need to know impairment in detail for this chapter?

You need to apply it with amortisation. Compute the carrying amount, compare it with the recoverable amount and book any loss. The detailed impairment method belongs to Ind AS 36, which you should revise alongside.