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Corporate Financial Reporting · Intangible Assets (Ind AS 38)

Ind AS 38 Scope, Definition and Recognition Criteria for Intangible Assets

Updated 11 October 2026 · Fact-checked

Ind AS 38 governs intangible assets not covered by another Standard. An item is an intangible asset only if it is identifiable, controlled by the entity and expected to give future economic benefits. It is also recognised only if it meets the recognition criteria. Otherwise, the cost is expensed when incurred.

Understand Ind AS 38 Scope, Definition and Recognition Criteria

Ind AS 38 deals with assets that have no physical form, such as software, licences, patents, copyrights and brand rights. It applies to all intangible assets except those covered by another Standard. It also excludes financial assets (Ind AS 32), exploration and evaluation assets (Ind AS 106), and expenditure on developing and extracting minerals, oil, natural gas and similar non-regenerative resources.

The Standard uses two tests in sequence. First, the item must meet the definition of an intangible asset. Second, it must meet the recognition criteria (paragraphs 21 to 23). Paragraph 18 says both tests apply to costs incurred initially and to costs incurred later to add to, replace part of, or service the asset.

The definition has three parts. Identifiability distinguishes the asset from goodwill. Goodwill in a business combination represents future benefits from assets that are not individually identified and separately recognised. Control means you have the power to obtain the future benefits and to restrict others' access to them. Legal rights that a court can enforce normally give control, but legal enforceability is not a necessary condition. Future economic benefits can be revenue from products or services, cost savings, or other benefits from using the asset.

Some common items usually fail the control test. A skilled workforce and training are not controlled, because staff can leave. Customer relationships and loyalty, and market share, are usually not controlled without legal rights or other ways to control them. Specific management or technical talent is unlikely to qualify unless legal rights protect it. Market and technical knowledge can qualify if protected, for example by copyright or a legal duty of employee confidentiality.

If an item fails the definition, the expenditure is expensed when incurred. If the item was acquired in a business combination, it forms part of the goodwill at the acquisition date. Subsequent expenditure is rarely capitalised. Subsequent expenditure on brands, mastheads, publishing titles, customer lists and similar items is always expensed, because it cannot be separated from developing the business as a whole.

Key rules to remember

Definition test (three parts)
Intangible asset = Identifiable + Controlled + Future economic benefits
All three must be met. Failing any one means the cost is expensed (or becomes part of goodwill in a business combination).
Two-stage recognition
Recognise only if: (a) definition met (paras 8–17) AND (b) recognition criteria met (paras 21–23)
Applies to initial costs and to later costs to add to, replace part of, or service the asset (para 18).
Control
Control = power to obtain benefits + ability to restrict others' access
Normally from enforceable legal rights, but legal enforceability is not essential (para 13).
Failed item treatment
Fails definition → expense when incurred; if acquired in a business combination → part of goodwill
Para 10.
Subsequent expenditure on brands etc.
Brands, mastheads, publishing titles, customer lists → always profit or loss
Para 20, whether acquired externally or internally generated.
Website costs
Website solely or primarily for promoting own products/services → expense all costs
Appendix A, para 8. A website that can generate revenue, such as taking orders, may be recognised if para 57 is met.

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

Use this sequence for any question asking whether an item is an intangible asset or how to treat the expenditure.

  1. 1Check scope: is the item covered by another Standard, a financial asset, an exploration and evaluation asset, or mineral and oil extraction expenditure? If yes, Ind AS 38 does not apply.
  2. 2Test identifiability: can it be distinguished from goodwill?
  3. 3Test control: does the entity have legal rights or another way to obtain the benefits and restrict others' access?
  4. 4Test future economic benefits: revenue, cost savings or other benefits from use.
  5. 5If any test fails, expense the cost when incurred. If it was acquired in a business combination, treat it as part of goodwill.
  6. 6If the definition is met, apply the recognition criteria in paragraphs 21 to 23, and for development costs the paragraph 57 conditions.
  7. 7For later spending, assume it maintains benefits and is expensed, unless it clearly meets both tests. Brands, mastheads, publishing titles and customer lists are always expensed.
  8. 8State the conclusion with the paragraph reason in one line.

Quickest way: Three-word check: Identify, Control, Benefit

When to use it: Use for MCQs and short case questions asking whether an item qualifies as an intangible asset.

  1. Spot the item type: staff, training, customers or market share usually fail control.
  2. Look for a legal right (patent, licence, copyright, contract) that supports control.
  3. Check whether the item is a website made only for advertising: expense.
  4. If it fails, the answer is expense, or goodwill if acquired in a business combination.
  5. Pick the option that mentions the failed element by name.

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

  • Capitalising training costs and a skilled workforce as intangible assets.

    Students see clear future benefits and ignore control.

    Fix: Remember para 15: an entity usually has insufficient control over skilled staff and training, so expense them.

  • Saying legal enforceability is always required for control.

    Students over-read the point that legal rights normally give control.

    Fix: Para 13 says legal enforceability is not a necessary condition. Control can arise in other ways, but it is harder to show.

  • Treating customer lists and customer loyalty as always unrecognisable.

    Students remember only the general rule.

    Fix: Para 16 says usually insufficient control, but exchange transactions for similar non-contractual customer relationships are evidence of control and separability.

  • Capitalising all website costs.

    A website seems like a long-lived asset.

    Fix: A website for promoting and advertising own products must be fully expensed. Only one that can generate revenue may qualify under para 57.

  • Capitalising later spending on a brand.

    Students assume subsequent costs enhance the asset.

    Fix: Para 20: subsequent expenditure on brands, mastheads, publishing titles and customer lists is always expensed.

  • Applying Ind AS 38 to every non-physical item.

    Students skip the scope exclusions.

    Fix: Check whether financial assets, exploration and evaluation assets or mineral extraction costs are involved. They are outside this Standard.

Worked examples

Example 1

Sunrise Textiles Ltd spent ₹8,00,000 on training its weaving staff and ₹12,00,000 on a licence from a government authority that gives it an exclusive right for 5 years to run a facility, and the licence is expected to reduce production costs. Decide the treatment of each under Ind AS 38.

Show the solution
  1. Training: management expects better skills and benefits, but it usually lacks control over staff and training benefits (para 15). It fails the definition.
  2. So the ₹8,00,000 is expensed in profit or loss when incurred (para 10).
  3. Licence: it is identifiable as it arises from a legal right and is separable from goodwill.
  4. Control: the exclusive legal right lets the entity restrict others' access to the benefits (para 13).
  5. Future economic benefits: cost savings count as benefits (para 17).
  6. The definition is met, so the licence is tested against the recognition criteria in paras 21 to 23. If met, it is capitalised.

Answer: Training ₹8,00,000 is expensed. The licence of ₹12,00,000 meets the definition and is recognised as an intangible asset if the para 21 to 23 criteria are also met.

Example 2

Bharat Retail Ltd built a website only to showcase and advertise its products, at a cost of ₹6,50,000. It also built an online store where customers can place orders, costing ₹9,00,000. Advise on the treatment.

Show the solution
  1. Appendix A, para 8: a website arising from development is recognised only if the general recognition requirements and para 57 are satisfied.
  2. The showcase website is developed solely or primarily to promote and advertise own products.
  3. An entity cannot demonstrate how such a website will generate probable future economic benefits, so all its cost is expensed when incurred.
  4. The online store can generate direct revenue by enabling orders to be placed, so it may satisfy para 57(d).
  5. It is capitalised only if the other para 57 conditions are also met. The benefits are assessed using Ind AS 36 principles (para 60).

Answer: The ₹6,50,000 advertising website is expensed. The ₹9,00,000 online store can be capitalised as an intangible asset if para 21 and para 57 conditions are all met; otherwise it is expensed.

Exam tips

  • In case-scenario MCQs, name the failed element: identifiability, control or future benefits.
  • For written answers, give the treatment first, then the paragraph reason, in two or three lines.
  • Learn the usual failing items: skilled staff, training, customer relationships, market share and advertising-only websites.
  • Always say 'expense when incurred' for failed items, and 'part of goodwill' if acquired in a business combination.
  • Check the scope exclusions before applying Ind AS 38 to any item.

Practice questions from Intangible Assets (Ind AS 38)

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 elements in the definition of an intangible asset under Ind AS 38?

They are identifiability, control over a resource and existence of future economic benefits. An item must meet all three. If any one is missing, the expenditure is expensed when incurred.

Is legal enforceability necessary for control?

No. Control normally stems from legal rights enforceable in a court, and without them control is harder to show. But para 13 says legal enforceability is not a necessary condition, as an entity may control the benefits in some other way.

Why is goodwill not an intangible asset under Ind AS 38?

Goodwill from a business combination represents future benefits from assets that are not individually identified and separately recognised. Because it is not identifiable, it is distinguished from intangible assets.

Can customer relationships ever be recognised?

Usually not, as the entity lacks control without legal rights. But if exchange transactions exist for the same or similar non-contractual customer relationships, that is evidence of control and separability, so they can meet the definition.