Summary of IAS 38
The objective of IAS 38 is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another IFRS. The Standard requires an entity to recognise an intangible asset if, and only if, certain criteria are met. The Standard also specifies how to measure the carrying amount of intangible assets and requires certain disclosures regarding intangible assets. [IAS 38.1]
IAS 38 applies to all intangible assets other than: [IAS 38.2-3]
financial assets (see IAS 32 Financial Instruments: Presentation) exploration and evaluation assets (see IFRS 6 Exploration for and Evaluation of Mineral Resources) expenditure on the development and extraction of minerals, oil, natural gas, and similar resources intangible assets arising from insurance contracts issued by insurance companies intangible assets covered by another IFRS, such as intangibles held for sale (IFRS 5 Non-current Assets Held for Sale and Discontinued Operations), deferred tax assets (IAS 12 Income Taxes), lease assets (IAS 17 Leases), assets arising from employee benefits (IAS 19 Employee Benefits (2011)), and goodwill (IFRS 3 Business Combinations).
Intangible asset: an identifiable non-monetary asset without physical substance. An asset is a resource that is controlled by the entity as a result of past events (for example, purchase or self-creation) and from which future economic benefits (inflows of cash or other assets) are expected. [IAS 38.8] Thus, the three critical attributes of an intangible asset are:
identifiability control (power to obtain benefits from the asset) future economic benefits (such as revenues or reduced future costs)
Identifiability: an intangible asset is identifiable when it: [IAS 38.12]
is separable (capable of being separated and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract) or arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.
Examples of intangible assets
patented technology, computer software, databases and trade secrets trademarks, trade dress, newspaper mastheads, internet domains video and audiovisual material (e.g. motion pictures, television programmes) customer lists mortgage servicing rights licensing, royalty and standstill agreements import quotas franchise agreements customer and supplier relationships (including customer lists) marketing rights
Intangibles can be acquired:
by separate purchase as part of a business combination by a government grant by exchange of assets by self-creation (internal generation)
Recognition criteria. IAS 38 requires an entity to recognise an intangible asset, whether purchased or self-created (at cost) if, and only if: [IAS 38.21]
it is probable that the future economic benefits that are attributable to the asset will flow to the entity; and the cost of the asset can be measured reliably.
This requirement applies whether an intangible asset is acquired externally or generated internally. IAS 38 includes additional recognition criteria for internally generated intangible assets (see below).
The probability of future economic benefits must be based on reasonable and supportable assumptions about conditions that will exist over the life of the asset. [IAS 38.22] The probability recognition criterion is always considered to be satisfied for intangible assets that are acquired separately or in a business combination. [IAS 38.33]
If recognition criteria not met. If an intangible item does not meet both the definition of and the criteria for recognition as an intangible asset, IAS 38 requires the expenditure on this item to be recognised as an expense when it is incurred. [IAS 38.68]