Corporate Financial Reporting · Intangible Assets (Ind AS 38)

Ind AS 38 Useful Life, Amortisation and Impairment

Updated 11 October 2026 · Fact-checked

Under Ind AS 38 you first decide whether an intangible asset has a finite or indefinite useful life. A finite-life asset is amortised over its life from the date it is available for use, with residual value normally zero. An indefinite-life asset is not amortised but is tested for impairment every year.

Understand Useful Life, Amortisation and Impairment

Every intangible asset needs a useful-life assessment. Under Ind AS 38 (para 88), the life is indefinite when, after analysing all relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows. Indefinite does not mean infinite. Otherwise the life is finite, measured in years or in production units.

A finite-life asset is amortised. Its depreciable amount (cost less residual value) is allocated on a systematic basis over its useful life (para 97). Amortisation starts when the asset is available for use, that is, in the location and condition needed to operate as management intends. It stops at the earlier of the date the asset is classified as held for sale under Ind AS 105 and the date it is derecognised.

The method must follow the pattern in which the future economic benefits are expected to be consumed. Para 98 lists straight-line, diminishing balance and units of production. If the pattern cannot be determined reliably, you must use straight-line. The charge goes to profit or loss unless a standard allows it to be included in the carrying amount of another asset.

An indefinite-life asset is not amortised (para 107). Instead it is tested for impairment under Ind AS 36 by comparing recoverable amount with carrying amount, annually and whenever there is an indication of impairment (para 108).

Both kinds of asset are reviewed. For finite-life assets, the period and method are reviewed at least at each financial year-end (para 104). For indefinite-life assets, you check each period whether events still support the indefinite assessment (para 109). These changes are changes in accounting estimates under Ind AS 8, so they apply prospectively.

Key rules to remember

Depreciable amount: Depreciable amount = Cost − Residual value; Residual value is assumed to be zero unless a third party has committed to buy the asset at the end of its life, or there is an active market from which it can be determined and it is probable that such a market will exist at the end of the life (para 100).
Straight-line amortisation: Annual amortisation = (Cost − Residual value) ÷ Useful life in years; Use this when the pattern of consumption of benefits cannot be determined reliably (para 97). Apply it for part years on a time basis.
Units of production amortisation: Amortisation for the year = (Cost − Residual value) × Units produced in the year ÷ Total expected units; One of the methods named in para 98. Choose it when benefits are consumed in line with output.
Impairment loss: Impairment loss = Carrying amount − Recoverable amount, if carrying amount is higher; Recoverable amount is determined under Ind AS 36. No loss arises if recoverable amount is equal to or above carrying amount.
Indefinite-life asset: No amortisation. Impairment test every year and whenever there is an indication of impairment; Paras 107 and 108. A change to finite life is a change in estimate (para 109) and is itself an impairment indicator (para 110).
Revision of estimate: New annual charge = (Carrying amount − Revised residual value) ÷ Remaining useful life; A change in life, method or pattern is a change in accounting estimate under Ind AS 8, applied prospectively (para 104).

How to solve Useful Life, Amortisation and Impairment questions

Use the same sequence for any question on useful life, amortisation or impairment of an intangible asset.

1Classify the asset: finite or indefinite life. Look for a foreseeable limit to net cash inflows, such as a licence term or contract period.
2If indefinite, stop amortisation. Move straight to the annual impairment test and any indicator-based test.
3If finite, find the date the asset became available for use. Amortisation starts then, not on the date of payment or contract.
4Fix the depreciable amount: cost less residual value. Take residual value as zero unless para 100 conditions are met.
5Choose the method from the pattern of benefits. Use straight-line if the pattern cannot be reliably determined. Compute the charge for each period, prorating part years.
6At each year-end, review life, method and residual value. If revised, compute the new charge prospectively on the carrying amount over the remaining life.
7Test for impairment where there is an indicator, or annually for indefinite-life assets. Loss = carrying amount − recoverable amount. Charge it to profit or loss and continue amortising the reduced amount over the remaining life.
8State the final carrying amount and the effect on profit or loss, and give a short reason for each treatment.

Quickest way: Four-line check for amortisation numericals

When to use it: Use it when time is short, especially in 2-mark MCQs and short numerical parts of a longer question.

Write: life type, start date, method.
Write: cost − residual value = amount to amortise.
Compute the charge by the year or by units, then the closing carrying amount.
If an estimate changes or impairment arises, restart from the carrying amount: (carrying amount − residual) ÷ remaining life.

Common mistakes in Useful Life, Amortisation and Impairment

Amortising an indefinite-life intangible asset.
Students link every asset with a depreciation charge, like PPE.
Fix: Remember para 107: no amortisation. Test for impairment every year instead.
Treating indefinite life as meaning infinite life or no impairment test.
The word indefinite is read too literally.
Fix: Indefinite means no foreseeable limit to net cash inflows. The annual impairment test under para 108 is mandatory.
Starting amortisation on the date of purchase or payment.
The date of cost incurred is confused with the date of use.
Fix: Start when the asset is available for use, in the location and condition needed to operate as management intends (para 97).
Assuming a residual value for a finite-life intangible.
The PPE habit of estimating scrap value is carried over.
Fix: Take zero unless a third-party purchase commitment or an active market meeting para 100 exists.
Restating past years when useful life or method changes.
Changes are confused with errors or policy changes.
Fix: Para 104 treats them as changes in estimate under Ind AS 8. Spread the carrying amount over the remaining life prospectively.
Forgetting to reduce the later amortisation after an impairment loss.
The loss is booked, then the original charge is continued.
Fix: After the loss, amortise the reduced carrying amount (less residual value) over the remaining useful life.

Worked examples

Example 1

Sahyadri Software Ltd acquired a software licence for ₹60,00,000 on 1 April 2025. It is available for use from 1 April 2025, with a useful life of 5 years and no residual value. On 31 March 2027 the management reviews and revises the remaining useful life to 2 more years (a total of 4 years from acquisition). Compute amortisation for FY 2025-26, FY 2026-27 and FY 2027-28, assuming straight-line and no impairment.

Show the solution

Finite life, available for use on 1 April 2025, residual value zero, so the depreciable amount is ₹60,00,000.
Annual charge at the original estimate: ₹60,00,000 ÷ 5 = ₹12,00,000.
FY 2025-26 charge: ₹12,00,000. Carrying amount at 31 March 2026: ₹48,00,000.
FY 2026-27 charge: ₹12,00,000. Carrying amount at 31 March 2027: ₹36,00,000.
At the year-end review the life is revised to a further 2 years. This is a change in estimate (para 104), applied prospectively. It does not change the FY 2026-27 charge already computed.
New annual charge: ₹36,00,000 ÷ 2 = ₹18,00,000 for FY 2027-28 and FY 2028-29.

Answer: Amortisation is ₹12,00,000 for FY 2025-26, ₹12,00,000 for FY 2026-27 and ₹18,00,000 for FY 2027-28. No past period is restated.

Example 2

Kaveri Foods Ltd holds a brand acquired separately at a cost of ₹40,00,000. After analysis it is judged to have an indefinite useful life. At 31 March 2027 the carrying amount is ₹40,00,000 and the recoverable amount is ₹32,50,000. The company charged no amortisation. Advise on the treatment and give the impairment entry. Then state what happens if at 31 March 2028 management concludes the brand now has a finite life of 5 years.

Show the solution

The brand has an indefinite life, so it is not amortised (para 107). Not charging amortisation is correct.
It must be tested for impairment annually and whenever there is an indication (para 108).
Impairment loss = ₹40,00,000 − ₹32,50,000 = ₹7,50,000, because carrying amount exceeds recoverable amount.
Entry: Debit Impairment loss (profit or loss) ₹7,50,000; Credit Brand (or accumulated impairment) ₹7,50,000. The carrying amount becomes ₹32,50,000.
If at 31 March 2028 the life is reassessed as finite, the change is a change in estimate under Ind AS 8 (para 109). It is also an impairment indicator (para 110), so you test for impairment again at that point.
After that test, amortise the carrying amount over the remaining 5 years from the date of the change. If the carrying amount is unchanged at ₹32,50,000 and residual value is zero, the charge is ₹32,50,000 ÷ 5 = ₹6,50,000 a year.

Answer: Impairment loss of ₹7,50,000 is recognised in profit or loss for FY 2026-27, giving a carrying amount of ₹32,50,000. A later reassessment to finite life is a change in estimate and an impairment indicator, after which amortisation (here ₹6,50,000 a year, if no further impairment) begins prospectively.

Exam tips

In MCQs, the traps are usually the start date of amortisation, zero residual value, and no amortisation for indefinite life. Check these first.
In written answers, quote the reason with the paragraph idea: for example, no foreseeable limit to net cash inflows for indefinite life.
For a changed estimate, always compute from the carrying amount over the remaining life. Never restate earlier years.
Show the impairment loss as carrying amount minus recoverable amount, with the profit or loss entry. Examiners give marks for the entry and the revised carrying amount.
In case scenarios, scan for hints: a licence with a fixed term suggests finite life; a long-established brand with no end in sight suggests indefinite life.

Practice questions from Intangible Assets (Ind AS 38)

Useful Life, Amortisation and Impairment in other exams

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

Useful Life, Amortisation and Impairment: frequently asked questions

What is the difference between finite and indefinite useful life under Ind AS 38?

A finite-life asset has a limit to the period over which it generates net cash inflows, so it is amortised. An indefinite-life asset has no foreseeable limit, so it is not amortised but tested for impairment every year and whenever an indication exists.

Can an intangible asset have a residual value?

Normally the residual value is zero. It can be non-zero only if a third party is committed to buy the asset at the end of its life, or there is an active market that gives the value and is probable to exist at the end of the life.

Which amortisation method should I use for intangible assets?

Use the method that reflects the expected pattern of consumption of future economic benefits. Straight-line, diminishing balance and units of production are all possible. If the pattern cannot be determined reliably, use straight-line.

How often are useful life and amortisation method reviewed?

For finite-life assets, the period and method are reviewed at least at each financial year-end. For an asset not being amortised, you review each period whether events still support an indefinite life. Changes are accounted for as changes in accounting estimates under Ind AS 8.