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ACCA Applied Knowledge · Financial Accounting · Intangible non-current assets and amortisation

Under IAS 38 Intangible Assets, which of the following items must be recognised as an expense when incurred rather than capitalised as an intangible asset?

An internally generated brand name must be expensed as incurred. IAS 38 forbids recognising it because its cost cannot be reliably separated from the cost of developing the business as a whole, whereas purchased patents, licences and qualifying development costs are capitalised.

  1. ACost of a patent purchased from another entity
  2. BInternally generated brand nameCorrect
  3. CLicence to use software acquired for a fixed fee
  4. DDevelopment expenditure meeting all the IAS 38 recognition criteria

Explanation

IAS 38 prohibits recognition of internally generated brands, mastheads, customer lists and similar items because their cost cannot be distinguished from the cost of developing the business as a whole. Purchased patents and licences are capitalised, and qualifying development costs must be capitalised.

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