Corporate Financial Reporting · Intangible Assets (Ind AS 38)

Ind AS 38 Initial Measurement and Separate Acquisition

Updated 11 October 2026 · Fact-checked

Under Ind AS 38, an intangible asset is first measured at cost. For a separate purchase, cost is the purchase price plus import duties and non-refundable taxes, less trade discounts and rebates, plus directly attributable costs. In a business combination, cost is fair value at the acquisition date. Grants and exchanges have their own rules.

Understand Initial Measurement and Separate Acquisition

An intangible asset is an identifiable non-monetary asset without physical substance. Cost is the cash or cash equivalents paid, or the fair value of other consideration given, to acquire the asset. The way you acquired the asset decides how you measure it.

For a separate acquisition, the price is usually clear, especially when you pay in cash or other monetary assets. So the cost can usually be measured reliably. Cost is the purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates. You then add any directly attributable cost of preparing the asset for its intended use.

In a business combination, you recognise the acquiree's intangible asset separately from goodwill, even if the acquiree never recognised it. Its cost is its fair value at the acquisition date. The standard treats the probability criterion and the reliable measurement criterion as always satisfied for such assets. This includes an in-process research and development project, if it meets the definition of an asset and is identifiable (separable, or arising from contractual or other legal rights).

For an asset received by government grant (for example licences or quotas), Ind AS 20 lets you choose. You can recognise both the asset and the grant at fair value. Or you can recognise the asset at a nominal amount plus directly attributable expenditure to prepare it for use.

For an exchange of assets, cost is the fair value of the asset received, unless the exchange lacks commercial substance or the fair value of neither asset is reliably measurable. In those cases, cost is the carrying amount of the asset given up.

Key rules to remember

Cost of separately acquired intangible: Cost = Purchase price (incl. import duties and non-refundable taxes) − trade discounts and rebates + directly attributable costs of preparing the asset for intended use; Refundable taxes, such as recoverable input tax credit, are not part of cost.
Business combination: Cost = Fair value at acquisition date; Recognised separately from goodwill, whether or not the acquiree had recognised it.
Government grant: Either fair value (asset and grant both at fair value), or nominal amount + directly attributable expenditure; The choice comes from Ind AS 20. If you recognise at fair value, extra disclosures apply.
Exchange of assets: Cost = Fair value, unless no commercial substance or fair value not reliably measurable; then cost = carrying amount of asset given up; Applies to exchanges for non-monetary assets or a mix of monetary and non-monetary assets.
Fair value definition: Price received to sell an asset in an orderly transaction between market participants at the measurement date; Ind AS 113 gives the detailed measurement rules.

How to solve Initial Measurement and Separate Acquisition questions

Use this order for any initial measurement question on intangible assets.

1Identify how the asset was acquired: separate purchase, business combination, government grant or exchange.
2Pick the measurement rule for that route from the formulas above.
3For a purchase, start with the price. Add import duties and non-refundable taxes. Deduct trade discounts and rebates.
4Add only directly attributable costs of preparing the asset for its intended use. Exclude general overheads, training and initial operating losses.
5For an exchange, test commercial substance and reliable fair value. Choose fair value or the carrying amount of the asset given up.
6For a grant, state the policy choice, then compute the amount under it.
7Show the journal entry or the final cost, and add a one-line reason citing the standard.

Quickest way: Route, then rule

When to use it: Use this when you have a few minutes for a 2-mark MCQ or a short working.

Name the route in one word: purchase, combination, grant or exchange.
Purchase: price − discounts + duties and non-refundable taxes + attributable cost.
Combination: take the fair value given. Do not test probability.
Exchange: fair value, unless no commercial substance or no reliable fair value. Then use the carrying amount given up.
Cross out refundable taxes and general overheads before adding.

Common mistakes in Initial Measurement and Separate Acquisition

Including refundable taxes such as recoverable input tax in cost.
Students add every tax shown on the invoice.
Fix: Include only import duties and non-refundable purchase taxes. Treat recoverable taxes as a receivable or credit.
Not deducting trade discounts and rebates from the purchase price.
The invoice price is taken as the cost directly.
Fix: Always deduct trade discounts and rebates first. Then add duties and attributable costs.
Capitalising training or general administration costs as attributable costs.
Students treat every cost linked to the asset as part of cost.
Fix: Capitalise only costs directly attributable to preparing the asset for its intended use, such as professional fees for that purpose.
Testing probability and reliable measurement for an intangible acquired in a business combination.
Students apply the separate-purchase recognition test everywhere.
Fix: Those criteria are always treated as satisfied for such assets. Use fair value at the acquisition date.
Using the carrying amount in every exchange.
Students confuse Ind AS 38 with older rules.
Fix: Use fair value unless the exchange lacks commercial substance or neither fair value is reliably measurable.
Forcing a grant asset to fair value.
Students forget the policy choice.
Fix: State both options: fair value, or nominal amount plus directly attributable expenditure.

Worked examples

Example 1

Pragati Ltd buys a software licence for ₹40,00,000 from a vendor. The vendor gives a trade discount of ₹2,00,000. The invoice also carries import duty of ₹1,50,000, non-refundable purchase tax of ₹50,000 and GST input tax credit of ₹3,00,000 that Pragati can recover. Pragati pays ₹80,000 to a consultant to install and configure the licence for its intended use. It also spends ₹60,000 on staff training. Compute the cost of the intangible asset.

Show the solution

Purchase price: ₹40,00,000.
Deduct trade discount: ₹40,00,000 − ₹2,00,000 = ₹38,00,000.
Add import duty ₹1,50,000 and non-refundable purchase tax ₹50,000: ₹38,00,000 + ₹2,00,000 = ₹40,00,000.
Exclude the recoverable GST credit of ₹3,00,000, because it is not a non-refundable tax.
Add installation and configuration of ₹80,000, a directly attributable cost: ₹40,80,000.
Exclude staff training of ₹60,000, because it is not a cost of preparing the asset for its intended use. Expense it.

Answer: Cost of the intangible asset = ₹40,80,000.

Example 2

Navbharat Ltd exchanges its brand licence (carrying amount ₹18,00,000, fair value ₹25,00,000) for a distribution right of Sagar Ltd. The exchange has commercial substance and fair values are reliably measurable. Fair value of the distribution right received is ₹24,00,000, and no cash changes hands. Separately, a second case: the same exchange lacks commercial substance. Find the cost of the distribution right in both cases.

Show the solution

Case 1: The exchange has commercial substance and fair value is reliably measurable, so cost is measured at fair value.
The asset given up has a clearly evidenced fair value of ₹25,00,000, so the received asset is measured at ₹25,00,000. The fair value of the asset given up is used when it is more clearly evident. This is the usual practice.
Case 2: The exchange lacks commercial substance, so cost is the carrying amount of the asset given up: ₹18,00,000.
No gain is recognised in case 2 because cost equals the carrying amount given up.

Answer: Case 1: cost is ₹25,00,000. Case 2: cost is ₹18,00,000.

Exam tips

Write the acquisition route first. Examiners award marks for choosing the correct rule.
In purchase problems, list each item as included or excluded with a reason. This earns partial marks even if the total is wrong.
For grant questions, mention both Ind AS 20 options. Then compute the one the question requires.
For exchange problems, state the two exceptions (no commercial substance, no reliable fair value) before using the carrying amount.
MCQs often test the business combination point. Remember that the probability and reliable measurement criteria are always treated as met.

Practice questions from Intangible Assets (Ind AS 38)

Initial Measurement and Separate Acquisition in other exams

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

Initial Measurement and Separate Acquisition: frequently asked questions

How is a separately acquired intangible asset measured at initial recognition?

It is measured at cost. Cost is the purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates, plus any directly attributable cost of preparing the asset for its intended use.

Why is fair value used for intangibles acquired in a business combination?

Cost in a business combination is the fair value at the acquisition date. Fair value already reflects market expectations about future benefits. So the probability and reliable measurement criteria are always treated as satisfied.

When is an exchange of intangible assets measured at carrying amount?

When the exchange lacks commercial substance, or when the fair value of neither the asset received nor the asset given up is reliably measurable. Otherwise the cost is measured at fair value.

How is an intangible asset received through a government grant measured?

You may recognise both the asset and the grant at fair value. Or you may recognise the asset at a nominal amount plus directly attributable expenditure to prepare it for its intended use.