ias-38_2026

Contents

INTERNATIONAL ACCOUNTING STANDARD 38

INTANGIBLE ASSETS

OBJECTIVE

SCOPE

DEFINITIONS

Intangible assets

RECOGNITION AND MEASUREMENT

Separate acquisition

Acquisition as part of a business combination

Acquisition by way of a government grant

Exchanges of assets

Internally generated goodwill

Internally generated intangible assets

RECOGNITION OF AN EXPENSE

Past expenses not to be recognised as an asset

MEASUREMENT AFTER RECOGNITION

Cost model

Revaluation model

USEFUL LIFE

INTANGIBLE ASSETS WITH FINITE USEFUL LIVES

Amortisation period and amortisation method

Residual value

100

Review of amortisation period and amortisation method

104

INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIVES

107

Review of useful life assessment

109

RECOVERABILITY OF THE CARRYING AMOUNT—IMPAIRMENT LOSSES

111

RETIREMENTS AND DISPOSALS

112

DISCLOSURE

118

General

118

Intangible assets measured after recognition using the revaluation model

124

Research and development expenditure

126

Other information

128

TRANSITIONAL PROVISIONS AND EFFECTIVE DATE

130

Exchanges of similar assets

131

Early application

132

WITHDRAWAL OF IAS 38 (ISSUED 1998)

133

APPROVAL BY THE BOARD OF IAS 38 ISSUED IN MARCH 2004

APPROVAL BY THE BOARD OF

CLARIFICATION OF ACCEPTABLE METHODS OF DEPRECIATION AND AMORTISATION

(AMENDMENTS TO IAS 16 AND IAS 38) ISSUED IN MAY 2014

FOR THE ACCOMPANYING GUIDANCE LISTED BELOW, SEE PART B OF THIS EDITION

ILLUSTRATIVE EXAMPLES

Assessing the useful lives of intangible assets

FOR THE BASIS FOR CONCLUSIONS, SEE PART C OF THIS EDITION

BASIS FOR CONCLUSIONS

DISSENTING OPINIONS

International Accounting Standard 38

Intangible Assets

(IAS 38) is set out in

paragraphs 1–133

. All the paragraphs have equal authority but retain the IASC format of the Standard when it was adopted by the IASB. IAS 38 should be read in the context of its

objective

and the

Basis for Conclusions

, the

Preface to IFRS Accounting Standards

and the

Conceptual Framework for Financial Reporting

IAS 8

Basis of Preparation of Financial Statements

provides a basis for selecting and applying accounting policies in the absence of explicit guidance.

[

Refer:

IAS 8 paragraphs 10–12

]

International Accounting Standard 38

Intangible Assets

Objective

The objective of this Standard is to prescribe the accounting treatment for

intangible assets

that are not dealt with specifically in another Standard. This Standard requires an entity to recognise an intangible asset if, and only if, specified criteria are met. The Standard also specifies how to measure the

carrying amount

of intangible assets and requires specified disclosures about intangible assets.

Scope

This Standard shall be applied in accounting for

intangible assets

except:

(a)

intangible assets that are within the scope of another Standard;

(b)

financial assets,

[

Refer:

IAS 32 paragraph 11 (definition of a financial asset)

]

as defined in

IAS 32

Financial Instruments: Presentation

;

(c)

the recognition and measurement of exploration and evaluation assets (see

IFRS 6

Exploration for and Evaluation of Mineral Resources

); and

(d)

expenditure on the development and extraction of minerals, oil, natural gas and similar non‑regenerative resources.

[IFRIC®

Update

, June 2019, Agenda Decision, ‘Holdings of Cryptocurrencies’

The Committee discussed how IFRS Standards apply to holdings of cryptocurrencies.

The Committee noted that a range of cryptoassets exist. For the purposes of its discussion, the Committee considered a subset of cryptoassets with all the following characteristics that this agenda decision refers to as a ‘cryptocurrency’:

a digital or virtual currency recorded on a distributed ledger that uses cryptography for security.

not issued by a jurisdictional authority or other party.

does not give rise to a contract between the holder and another party.

Nature of a cryptocurrency

Paragraph 8 of

IAS 38

Intangible Assets

defines an intangible asset as ‘an identifiable non-monetary asset without physical substance’.

Paragraph 12 of IAS 38 states that an asset is identifiable if it is separable or arises from contractual or other legal rights. An asset is separable if it ‘is capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, identifiable asset or liability’.

Paragraph 16 of

IAS 21

The Effects of Changes in Foreign Exchange Rates

states that ‘the essential feature of a non-monetary item is the absence of a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency’.

The Committee observed that a holding of cryptocurrency meets the definition of an intangible asset in IAS 38 on the grounds that (a) it is capable of being separated from the holder and sold or transferred individually; and (b) it does not give the holder a right to receive a fixed or determinable number of units of currency.

Which IFRS Standard applies to holdings of cryptocurrencies?

The Committee concluded that

IAS 2

Inventories

applies to cryptocurrencies when they are held for sale in the ordinary course of business. If IAS 2 is not applicable, an entity applies IAS 38 to holdings of cryptocurrencies. The Committee considered the following in reaching its conclusion.

Intangible Asset

IAS 38 applies in accounting for all intangible assets except:

those that are within the scope of another Standard;

financial assets, as defined in

IAS 32

Financial Instruments: Presentation

;

the recognition and measurement of exploration and evaluation assets; and

expenditure on the development and extraction of minerals, oil, natural gas and similar non-regenerative resources.

Accordingly, the Committee considered whether a holding of cryptocurrency meets the definition of a financial asset in IAS 32 or is within the scope of another Standard.

Financial asset

Paragraph 11 of IAS 32 defines a financial asset. In summary, a financial asset is any asset that is: (a) cash; (b) an equity instrument of another entity; (c) a contractual right to receive cash or another financial asset from another entity; (d) a contractual right to exchange financial assets or financial liabilities with another entity under particular conditions; or (e) a particular contract that will or may be settled in the entity’s own equity instruments.

The Committee concluded that a holding of cryptocurrency is not a financial asset. This is because a cryptocurrency is not cash (see below). Nor is it an equity instrument of another entity. It does not give rise to a contractual right for the holder and it is not a contract that will or may be settled in the holder’s own equity instruments.

Cash

Paragraph AG3 of IAS 32 states that ‘currency (cash) is a financial asset because it represents the medium of exchange and is therefore the basis on which all transactions are measured and recognised in financial statements. A deposit of cash with a bank or similar financial institution is a financial asset because it represents the contractual right of the depositor to obtain cash from the institution or to draw a cheque or similar instrument against the balance in favour of a creditor in payment of a financial liability’.

The Committee observed that the description of cash in paragraph AG3 of IAS 32 implies that cash is expected to be used as a medium of exchange (ie used in exchange for goods or services) and as the monetary unit in pricing goods or services to such an extent that it would be the basis on which all transactions are measured and recognised in financial statements.

Some cryptocurrencies can be used in exchange for particular good or services. However, the Committee noted that it is not aware of any cryptocurrency that is used as a medium of exchange and as the monetary unit in pricing goods or services to such an extent that it would be the basis on which all transactions are measured and recognised in financial statements. Consequently, the Committee concluded that a holding of cryptocurrency is not cash because cryptocurrencies do not currently have the characteristics of cash.

Inventory

IAS 2 applies to inventories of intangible assets. Paragraph 6 of that Standard defines inventories as assets:

held for sale in the ordinary course of business;

in the process of production for such sale; or

in the form of materials or supplies to be consumed in the production process or in the rendering of services.

The Committee observed that an entity may hold cryptocurrencies for sale in the ordinary course of business. In that circumstance, a holding of cryptocurrency is inventory for the entity and, accordingly, IAS 2 applies to that holding.

The Committee also observed that an entity may act as a broker-trader of cryptocurrencies. In that circumstance, the entity considers the requirements in paragraph 3(b) of IAS 2 for commodity broker-traders who measure their inventories at fair value less costs to sell. Paragraph 5 of IAS 2 states that broker-traders are those who buy or sell commodities for others or on their own account. The inventories referred to in paragraph 3(b) are principally acquired with the purpose of selling in the near future and generating a profit from fluctuations in price or broker-traders’ margin.

Disclosure

In addition to disclosures otherwise required by IFRS Standards, an entity is required to disclose any additional information that is relevant to an understanding of its financial statements (

paragraph 112

IAS 1

Presentation of Financial Statements

[now

paragraph 113

IFRS 18

Presentation and Disclosure in Financial Statements

]). In particular, the Committee noted the following disclosure requirements in the context of holdings of cryptocurrencies:

An entity provides the disclosures required by (i) paragraphs 36–39 of IAS 2 for cryptocurrencies held for sale in the ordinary course of business; and (ii) paragraphs 118–128 of IAS 38 for holdings of cryptocurrencies to which it applies IAS 38.

If an entity measures holdings of cryptocurrencies at fair value, paragraphs 91–99 of

IFRS 13

Fair Value Measurement

specify applicable disclosure requirements.

Applying

paragraph 122

IAS 1

[now

paragraph 27G

IAS 8

Basis of Preparation of Financial Statements

], an entity discloses judgements that its management has made regarding its accounting for holdings of cryptocurrencies if those are part of the judgements that had the most significant effect on the amounts recognised in the financial statements.

Paragraph 21 of

IAS 10

Events after the Reporting Period

requires an entity to disclose details of any material non-adjusting events, including information about the nature of the event and an estimate of its financial effect (or a statement that such an estimate cannot be made). For example, an entity holding cryptocurrencies would consider whether changes in the fair value of those holdings after the reporting period are of such significance that non-disclosure could influence the economic decisions that users of financial statements make on the basis of the financial statements.]

If another Standard prescribes the accounting for a specific type of

intangible asset

, an entity applies that Standard instead of this Standard. For example, this Standard does not apply to:

(a)

intangible assets held by an entity for sale in the ordinary course of business (see

IAS 2

Inventories

(b)

deferred tax assets (see

IAS 12

Income Taxes

(c)

leases

[

Refer:

IFRS 16 Appendix A (definition of lease)

]

of intangible assets accounted for in accordance with

IFRS 16

Leases

[

Refer:

IFRS 16 paragraph 4

]

(d)

assets arising from employee benefits (see

IAS 19

Employee Benefits

(e)

financial assets

[

Refer:

IAS 32 paragraph 11 (definition of a financial asset)

]

as defined in

IAS 32

. The recognition and measurement of some financial assets are covered by

IFRS 10

Consolidated Financial Statements

IAS 27

Separate Financial Statements

and

IAS 28

Investments in Associates and Joint Ventures

(f)

goodwill acquired in a business combination (see

IFRS 3

Business Combinations

(g)

contracts within the scope of IFRS 17

Insurance Contracts

and any assets for

insurance acquisition cash flows

as defined in IFRS 17.

(h)

non‑current intangible assets classified as held for sale (or included in a disposal group that is classified as held for sale)

[

Refer:

IFRS 5 paragraphs 6–14

]

in accordance with

IFRS 5

Non‑current Assets Held for Sale and Discontinued Operations

(i)

assets

arising from contracts with customers that are recognised in accordance with

IFRS 15

Revenue from Contracts with Customers

Some

intangible assets

may be contained in or on a physical substance such as a compact disc (in the case of computer software), legal documentation (in the case of a licence or patent) or film. In determining whether an asset that incorporates both intangible and tangible elements should be treated under

IAS 16

Property, Plant and Equipment

or as an intangible asset under this Standard, an entity uses judgement to assess which element is more significant. For example, computer software for a computer‑controlled machine tool that cannot operate without that specific software is an integral part of the related hardware and it is treated as property, plant and equipment. The same applies to the operating system of a computer. When the software is not an integral part of the related hardware, computer software is treated as an intangible asset.

This Standard applies to, among other things, expenditure on advertising, training, start‑up,

research

and

development

activities.

Research

[

Refer:

paragraph 56

]

and development

[

Refer:

paragraph 59

]

activities are directed to the development of knowledge. Therefore, although these activities may result in an asset with physical substance (eg a prototype), the physical element of the asset is secondary to its intangible component, ie the knowledge embodied in it.

[IFRIC®

Update

, March 2020, Agenda Decision, ‘

IFRS 15

Revenue from Contracts with Customers

—Training Costs to Fulfil a Contract’

The Committee received a request about training costs incurred to fulfil a contract with a customer. In the fact pattern described in the request:

an entity enters into a contract with a customer that is within the scope of IFRS 15. The contract is for the supply of outsourced services.

to be able to provide the services to the customer, the entity incurs costs to train its employees so that they understand the customer’s equipment and processes. The training costs are as described in paragraph 15 of

IAS 38

Intangible Assets

—the entity has insufficient control over the expected future economic benefits arising from the training to meet the definition of an intangible asset because employees can leave the entity’s employment. Applying IFRS 15, the entity does not identify the training activities as a performance obligation.

the contract permits the entity to charge to the customer the costs of training (i) the entity’s employees at the beginning of the contract, and (ii) new employees that the entity hires as a result of any expansion of the customer’s operations.

The request asked whether the entity recognises the training costs as an asset or an expense when incurred.

Which IFRS Standard applies to the training costs?

Paragraph 95 of IFRS 15 requires an entity to recognise an asset from the costs incurred to fulfil a contract with a customer if the costs are not within the scope of another IFRS Standard, and only if those costs meet all three criteria specified in paragraph 95. Consequently, before assessing the criteria in paragraph 95, the entity first considers whether the training costs incurred to fulfil the contract are within the scope of another IFRS Standard.

Paragraphs 2–7 of IAS 38 describe the scope of that Standard—paragraph 5 explicitly includes expenditure on training within IAS 38’s scope, stating that IAS 38 ‘applies to, among other things, expenditure on advertising, training, start-up, research and development activities’. Accordingly, the Committee concluded that, in the fact pattern described in the request, the entity applies IAS 38 in accounting for the training costs incurred to fulfil the contract with the customer.

Application of IAS 38

Paragraph 69(b) of IAS 38 includes expenditure on training activities as an example of expenditure that is incurred ‘to provide future economic benefits to an entity, but no intangible asset or other asset is acquired or created that can be recognised’. Consequently, paragraph 69 states that such expenditure on training activities is recognised as an expense when incurred. Paragraph 15 of IAS 38 explains that ‘an entity usually has insufficient control over the expected future economic benefits arising from a team of skilled staff and from training for these items to meet the definition of an intangible asset’.

In addition, in explaining the requirements in IFRS 15 regarding costs to fulfil a contract, paragraph BC307 of IFRS 15 states that ‘if the other Standards preclude the recognition of any asset arising from a particular cost, an asset cannot then be recognised under IFRS 15’.

Accordingly, the Committee concluded that, in the fact pattern described in the request, the entity recognises the training costs to fulfil the contract with the customer as an expense when incurred. The Committee noted that the entity’s ability to charge to the customer the costs of training does not affect that conclusion.

The Committee concluded that the principles and requirements in IFRS 15 and IAS 38 provide an adequate basis for an entity to determine its accounting for training costs incurred to fulfil a contract with a customer. Consequently, the Committee decided not to add the matter to its standard-setting agenda.]

Rights held by a lessee

[

Refer:

IFRS 16 Appendix A (definition of lessee)

]

under licensing agreements for items such as motion picture films, video recordings, plays, manuscripts, patents and copyrights are within the scope of this Standard and are excluded from the scope of

IFRS 16

[

Refer:

IFRS 16 paragraph 3(e)

]

Exclusions from the scope of a Standard may occur if activities or transactions are so specialised that they give rise to accounting issues that may need to be dealt with in a different way. Such issues arise in the accounting for expenditure on the exploration for, or development and extraction of, oil, gas and mineral deposits in extractive industries and in the case of insurance contracts. Therefore, this Standard does not apply to expenditure on such activities and contracts. However, this Standard applies to other

intangible assets

used (such as computer software), and other expenditure incurred (such as start‑up costs), in extractive industries or by insurers.

Definitions

The following terms are used in this Standard with the meanings specified:

Amortisation

is the systematic allocation of the

depreciable amount

of an

intangible asset

over its

useful life

asset

is a resource:

(a)

controlled

[

Refer:

paragraphs 13–16

]

by an entity as a result of past events; and

(b)

from which future economic benefits

[

Refer:

paragraph 17

]

are expected to flow to the entity.

Carrying amount

is the amount at which an asset is recognised in the statement of financial position after deducting any accumulated

amortisation

and accumulated

impairment losses

thereon.

Cost

is the amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an

asset

at the time of its acquisition or construction, or, when applicable, the amount attributed to that asset when initially recognised in accordance with the specific requirements of other IFRSs, eg

IFRS 2

Share‑based Payment

Depreciable amount

is the

cost

of an asset, or other amount substituted for cost, less its

residual value

Development

is the application of

research

findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use.

Entity‑specific value

is the present value of the cash flows an entity expects to arise from the continuing use of an asset and from its disposal at the end of its

useful life

or expects to incur when settling a liability.

Fair value

is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. (See

IFRS 13

Fair Value Measurement

impairment loss

is the amount by which the

carrying amount

of an asset exceeds its recoverable amount.

intangible asset

is an identifiable

[

Refer:

paragraphs 11 and 12

]

non‑monetary asset

[

Refer:

paragraphs 13–17

]

without physical substance.

[

Refer:

Basis for Conclusions paragraphs BC4 and BC5

]

Monetary assets

are money held and

assets

to be received in fixed or determinable amounts of money.

Research

is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding.

The

residual value

of an

intangible asset

is the estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its

useful life

Useful life

is:

(a)

the period over which an

asset

is expected to be available for use by an entity; or

(b)

the number of production or similar units expected to be obtained from the asset by an entity.

[IFRIC®

Update

, July 2009, Agenda Decision, ‘IAS 38

Intangible Assets

—Compliance costs for REACH’

The IFRIC received a request to add an item to its agenda to provide guidance on the treatment of costs incurred to comply with the requirements of the European Regulation concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH). The Regulation came into force in part on 1 June 2007 and companies had begun to account for the first costs incurred to comply.

At its meetings in March and May 2009 the IFRIC considered detailed background information, an analysis of the issue, current practice and an assessment of the issue against its agenda criteria. The IFRIC noted that IAS 38 includes definitions and recognition criteria for intangible assets that provide guidance to enable entities to account for the costs of complying with the REACH regulation.

The IFRIC concluded that any guidance it could develop beyond that already given would be more in the nature of implementation guidance than an interpretation. For this reason, the IFRIC decided not to add the issue to its agenda.]

Intangible assets

[IFRIC®

Update

, March 2025, Agenda Decision, ‘

IAS 38

Intangible Assets

—Recognition of Intangible Assets from Climate-related Expenditure’

The Committee received a request about whether an entity’s acquisitions of carbon credits and expenditure on research activities and development activities meet the requirements in IAS 38 to be recognised as intangible assets.

Fact pattern

A summary of the fact pattern described in the request is as follows:

an entity made a commitment in 2020 and 2021 to other parties to reduce a percentage of its carbon emissions by 2030 (referred to as a ‘2030 commitment’).

the entity has taken ‘affirmative actions’ and, in its view, has created an established pattern of practice to achieve its 2030 commitment. These affirmative actions include: (i) creating a transition plan; (ii) engaging with ‘net zero focused investors’; (iii) publishing its commitment and plans on its website; (iv) joining coalitions with a mission to collaborate to achieve emissions reductions; (v) stating its emission reduction targets in its financial statements and in presentations to investors and others; and (vi) allocating capital to buying carbon credits and investing in ‘innovation programs’ purposed to find solutions to reduce emissions to meet its 2030 commitment.

the entity’s innovation programs will typically involve creating teams of people with know-how, expertise and other intellectual property to create and develop solutions for emissions reductions specific to the entity or its sector and will result in the creation of intellectual capital.

the entity’s investors, insurers and bankers have made their own transition commitments relying on the entity’s actions.

the entity has concluded that its 2030 commitment and subsequent affirmative actions have created a constructive or legal obligation applying

IAS 37

Provisions, Contingent Liabilities and Contingent Assets

As described in the April 2024 Agenda Decision

Climate-related Commitments

(IAS 37), if an entity has a constructive or legal obligation, the entity considers the criteria in paragraph 14 of IAS 37 in determining whether it recognises a provision for the costs of fulfilling that obligation. The Committee also observed that the entity separately assesses whether it recognises an asset or an expense.

The request asks whether, during its 2024 annual reporting period, the entity’s acquisitions of carbon credits and expenditure on research activities and development activities, resulting in intellectual capital from innovation programs as described in the fact pattern, meet the requirements in IAS 38 to be recognised as intangible assets.

Additional background

The IASB has been researching and engaging with stakeholders about the prevalence and significance of pollutant pricing mechanisms (PPMs), some of which include the use of carbon credits. While a project on PPMs remains on its reserve list, the IASB expects to decide during its next agenda consultation whether to add a project on the accounting for PPMs to its work plan.

Accordingly, the Committee did not consider the question about the accounting for acquisitions of carbon credits separately from the IASB’s research on PPMs. The Committee instead considered only the question about the accounting for expenditure on research activities and development activities.

Findings and conclusion

Evidence gathered by the Committee indicated no material diversity in the accounting for expenditure on research activities and development activities. Based on its findings, the Committee concluded that the matter described in the request does not have widespread effect. Consequently, the Committee decided not to add a standard-setting project to the work plan.]

Entities frequently expend resources, or incur liabilities, on the acquisition, development, maintenance or enhancement of intangible resources such as scientific or technical knowledge, design and implementation of new processes or systems, licences, intellectual property, market knowledge and trademarks (including brand names and publishing titles). Common examples of items encompassed by these broad headings are computer software, patents, copyrights, motion picture films, customer lists, mortgage servicing rights, fishing licences, import quotas, franchises, customer or supplier relationships, customer loyalty, market share and marketing rights.

Not all the items described in

paragraph 9

meet the definition of an

intangible asset,

[

Refer:

paragraph 8 (definition of an intangible asset)

]

ie identifiability,

[

Refer:

paragraphs 11 and 12

]

control

[

Refer:

paragraphs 13–16

]

over a resource and existence of future economic benefits.

[

Refer:

paragraph 17

]

If an item within the scope of this Standard does not meet the definition of an intangible asset, expenditure to acquire it or generate it internally is recognised as an expense when it is incurred. However, if the item is acquired in a business combination, it forms part of the goodwill recognised at the acquisition date (see

paragraph 68

Identifiability

[

Refer:

Basis for Conclusions paragraphs BC6–BC10

]

The definition of an intangible asset requires an

intangible asset

to be identifiable to distinguish it from goodwill. Goodwill recognised in a business combination is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised. The future economic benefits may result from synergy between the identifiable assets acquired or from assets that, individually, do not qualify for recognition in the financial statements.

asset

is identifiable if it either:

(a)

is separable, ie is capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, identifiable asset or liability, regardless of whether the entity intends to do so; or

(b)

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.

[

Refer:

IFRS 3 paragraphs B32–B34

]

Control

An entity controls an

asset

if the entity has the power to obtain the future economic benefits

[

Refer:

paragraph 17

]

flowing from the underlying resource and to restrict the access of others to those benefits.

E5,

The capacity of an entity to control the future economic benefits from an

intangible asset

would normally stem from legal rights that are enforceable in a court of law. In the absence of legal rights, it is more difficult to demonstrate control. However, legal enforceability of a right is not a necessary condition for control because an entity may be able to control the future economic benefits in some other way.

[IFRIC®

Update

, March 2019, Agenda Decision, ‘

IAS 38

Intangible Assets

—Customer’s Right to Receive Access to the Supplier’s Software Hosted on the Cloud’

The Committee received a request about how a customer accounts for a ‘Software as a Service’ cloud computing arrangement in which the customer contracts to pay a fee in exchange for a right to receive access to the supplier’s application software for a specified term. The supplier’s software runs on cloud infrastructure managed and controlled by the supplier. The customer accesses the software on an as needed basis over the internet or via a dedicated line. The contract does not convey to the customer any rights over tangible assets.

Does the customer receive a software asset at the contract commencement date or a service over the contract term?

The Committee noted that a customer receives a software asset at the contract commencement date if either (a) the contract contains a software lease, or (b) the customer otherwise obtains control of software at the contract commencement date.

A software lease

IFRS 16

Leases

defines a lease as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration’. Paragraphs 9 and B9 of IFRS 16 explain that a contract conveys the right to use an asset if, throughout the period of use, the customer has both:

the right to obtain substantially all the economic benefits from use of the asset (an identified asset); and

the right to direct the use of that asset.

Paragraphs B9–B31 of IFRS 16 provide application guidance on the definition of a lease. Among other requirements, that application guidance specifies that a customer generally has the right to direct the use of an asset by having decision-making rights to change how and for what purpose the asset is used throughout the period of use. Accordingly, in a contract that contains a lease the supplier has given up those decision-making rights and transferred them to the customer at the lease commencement date.

The Committee observed that a right to receive future access to the supplier’s software running on the supplier’s cloud infrastructure does not in itself give the customer any decision-making rights about how and for what purpose the software is used—the supplier would have those rights by, for example, deciding how and when to update or reconfigure the software, or deciding on which hardware (or infrastructure) the software will run. Accordingly, if a contract conveys to the customer only the right to receive access to the supplier’s application software over the contract term, the contract does not contain a software lease.

A software intangible asset

IAS 38 defines an intangible asset as ‘an identifiable non-monetary asset without physical substance’. It notes that an asset is a resource controlled by the entity and paragraph 13 specifies that an entity controls an intangible asset if it has the power to obtain the future economic benefits flowing from the underlying resource and to restrict the access of others to those benefits.

The Committee observed that, if a contract conveys to the customer only the right to receive access to the supplier’s application software over the contract term, the customer does not receive a software intangible asset at the contract commencement date. A right to receive future access to the supplier’s software does not, at the contract commencement date, give the customer the power to obtain the future economic benefits flowing from the software itself and to restrict others’ access to those benefits.

Consequently, the Committee concluded that a contract that conveys to the customer only the right to receive access to the supplier’s application software in the future is a service contract. The customer receives the service—the access to the software—over the contract term. If the customer pays the supplier before it receives the service, that prepayment gives the customer a right to future service and is an asset for the customer.

The Committee concluded that the requirements in IFRS Standards provide an adequate basis for an entity to account for fees paid or payable to receive access to the supplier’s application software in Software as a Service arrangements. Consequently, the Committee decided not to add this matter to its standard-setting agenda.]

[IFRIC®

Update

, March 2021, Agenda Decision, ‘

IAS 38

Intangible Assets

—Configuration or Customisation Costs in a Cloud Computing Arrangement’

The Committee received a request about how a customer accounts for costs of configuring or customising a supplier’s application software in a Software as a Service (SaaS) arrangement. In the fact pattern described in the request:

a customer enters into a SaaS arrangement with a supplier. The contract conveys to the customer the right to receive access to the supplier’s application software over the contract term. That right to receive access does not provide the customer with a software asset and, therefore, the access to the software is a service that the customer receives over the contract term.

the customer incurs costs of configuring or customising the supplier’s application software to which the customer receives access. The request describes configuration and customisation as follows:

configuration involves the setting of various ‘flags’ or ‘switches’ within the application software, or defining values or parameters, to set up the software’s existing code to function in a specified way.

ii.

customisation involves modifying the software code in the application or writing additional code. Customisation generally changes, or creates additional, functionalities within the software.

the customer receives no other goods or services.

In analysing the request, the Committee considered:

whether, applying IAS 38, the customer recognises an intangible asset in relation to configuration or customisation of the application software (Question I).

if an intangible asset is not recognised, how the customer accounts for the configuration or customisation costs (Question II).

Does the customer recognise an intangible asset in relation to configuration or customisation of the application software (Question I)?

Applying paragraph 18 of IAS 38, an entity recognises an item as an intangible asset when the entity demonstrates that the item meets both the definition of an intangible asset and the recognition criteria in paragraphs 21–23 of IAS 38. IAS 38 defines an intangible asset as ‘an identifiable non-monetary asset without physical substance’. IAS 38 notes that an asset is a resource controlled by an entity and paragraph 13 specifies that an entity controls an asset if it has ‘the power to obtain the future economic benefits flowing from the underlying resource and to restrict the access of others to those benefits’.

In the fact pattern described in the request, the supplier controls the application software to which the customer has access. The assessment of whether configuration or customisation of that software results in an intangible asset for the customer depends on the nature and output of the configuration or customisation performed. The Committee observed that, in the SaaS arrangement described in the request, the customer often would not recognise an intangible asset because it does not control the software being configured or customised and those configuration or customisation activities do not create a resource controlled by the customer that is separate from the software. In some circumstances, however, the arrangement may result in, for example, additional code from which the customer has the power to obtain the future economic benefits and to restrict others’ access to those benefits. In that case, in determining whether to recognise the additional code as an intangible asset, the customer assesses whether the additional code is identifiable and meets the recognition criteria in IAS 38.

...

The Committee concluded that the principles and requirements in IFRS Standards provide an adequate basis for a customer to determine its accounting for configuration or customisation costs incurred in relation to the SaaS arrangement described in the request. Consequently, the Committee decided not to add a standard-setting project to the work plan.

[The full text of the agenda decision is reproduced after paragraph 69A of IAS 38.]]

Market and technical knowledge may give rise to future economic benefits.

[

Refer:

paragraph 17

]

An entity controls those benefits if, for example, the knowledge is protected by legal rights such as copyrights, a restraint of trade agreement (where permitted) or by a legal duty on employees to maintain confidentiality.

An entity may have a team of skilled staff and may be able to identify incremental staff skills leading to future economic benefits

[

Refer:

paragraph 17

]

from training. The entity may also expect that the staff will continue to make their skills available to the entity. However, an entity usually has insufficient control over the expected future economic benefits arising from a team of skilled staff and from training for these items to meet the definition of an

intangible asset

. For a similar reason, specific management or technical talent is unlikely to meet the definition of an intangible asset, unless it is protected by legal rights to use it and to obtain the future economic benefits expected from it, and it also meets the other parts of the definition.

An entity may have a portfolio of customers or a market share and expect that, because of its efforts in building customer relationships and loyalty, the customers will continue to trade with the entity. However, in the absence of legal rights to protect, or other ways to control, the relationships with customers or the loyalty of the customers to the entity, the entity usually has insufficient control over the expected economic benefits from customer relationships and loyalty for such items (eg portfolio of customers, market shares, customer relationships and customer loyalty) to meet the definition of

intangible assets

. In the absence of legal rights to protect customer relationships, exchange transactions for the same or similar non‑contractual customer relationships (other than as part of a business combination) provide evidence that the entity is nonetheless able to control the expected future economic benefits

[

Refer:

paragraph 17

]

flowing from the customer relationships. Because such exchange transactions also provide evidence that the customer relationships are separable, those customer relationships meet the definition of an intangible asset.

[

Refer:

Basis for Conclusions paragraphs BC11–BC14

]

Future economic benefits

The future economic benefits flowing from an

intangible asset

may include revenue from the sale of products or services, cost savings, or other benefits resulting from the use of the asset by the entity. For example, the use of intellectual property in a production process may reduce future production costs rather than increase future revenues.

Recognition and measurement

The recognition of an item as an

intangible asset

requires an entity to demonstrate that the item meets:

(a)

the definition of an intangible asset (see

paragraphs 8–17

); and

(b)

the recognition criteria (see

paragraphs 21–23

This requirement applies to

costs

incurred initially to acquire or internally generate an intangible asset and those incurred subsequently to add to, replace part of, or service it.

Paragraphs 25–32

deal with the application of the recognition criteria to separately acquired

intangible assets

, and

paragraphs 33–43

deal with their application to intangible assets acquired in a business combination.

Paragraph 44

deals with the initial measurement of intangible assets acquired by way of a government grant,

paragraphs 45–47

with exchanges of intangible assets, and

paragraphs 48–50

with the treatment of internally generated goodwill.

Paragraphs 51–67

deal with the initial recognition and measurement of internally generated intangible assets.

The nature of

intangible assets

is such that, in many cases, there are no additions to such an asset or replacements of part of it. Accordingly, most subsequent expenditures are likely to maintain the expected future economic benefits

[

Refer:

paragraph 17

]

embodied in an existing intangible asset rather than meet the definition of an intangible asset and the recognition criteria in this Standard. In addition, it is often difficult to attribute subsequent expenditure directly to a particular intangible asset rather than to the business as a whole. Therefore, only rarely will subsequent expenditure—expenditure incurred after the initial recognition of an acquired intangible asset or after completion of an internally generated intangible asset—be recognised in the

carrying amount

of an asset. Consistently with

paragraph 63

, subsequent expenditure on brands, mastheads, publishing titles, customer lists and items similar in substance (whether externally acquired or internally generated) is always recognised in profit or loss as incurred. This is because such expenditure cannot be distinguished from expenditure to develop the business as a whole.

intangible asset

shall be recognised if, and only if:

(a)

it is probable that the expected future economic benefits

[

Refer:

paragraph 17

]

that are attributable to the asset will flow to the entity; and

(b)

the

cost

of the asset can be measured reliably.

[IFRIC®

Update

, July 2009, Agenda Decision, ‘IAS 38

Intangible Assets

—Compliance costs for REACH’

An entity shall assess the probability of expected future economic benefits

[

Refer:

paragraph 17

]

using reasonable and supportable assumptions that represent management’s best estimate of the set of economic conditions that will exist over the

useful life

of the

asset

An entity uses judgement to assess the degree of certainty attached to the flow of future economic benefits

[

Refer:

paragraph 17

]

that are attributable to the use of the

asset

on the basis of the evidence available at the time of initial recognition, giving greater weight to external evidence.

intangible asset

shall be measured initially at

cost

Separate acquisition

[

Refer:

Basis for Conclusions paragraphs BC26–BC28

]

Normally, the price an entity pays to acquire separately an

intangible asset

will reflect expectations about the probability that the expected future economic benefits

[

Refer:

paragraph 17

]

embodied in the asset will flow to the entity. In other words, the entity expects there to be an inflow of economic benefits, even if there is uncertainty about the timing or the amount of the inflow. Therefore, the probability recognition criterion in

paragraph 21(a)

is always considered to be satisfied for separately acquired intangible assets.

In addition, the

cost

of a separately acquired

intangible asset

can usually be measured reliably. This is particularly so when the purchase consideration is in the form of cash or other

monetary assets

The

cost

of a separately acquired

intangible asset

comprises:

(a)

its purchase price, including import duties and non‑refundable purchase taxes, after deducting trade discounts and rebates;

and

(b)

any directly attributable cost of preparing the asset for its intended use.

[IFRIC®

Update

, March 2016, Agenda Decision, ‘IAS 16

Property, Plant and Equipment

and IAS 38

Intangible Assets

—Variable payments for asset purchases’

The Interpretations Committee received a request to address the accounting for variable payments to be made for the purchase of an item of property, plant and equipment or an intangible asset that is not part of a business combination.

The Interpretations Committee observed significant diversity in practice in accounting for these variable payments. It discussed the accounting, both at the date of purchasing the asset and thereafter, for variable payments that depend on the purchaser’s future activity as well as those that do not depend on such future activity.

The Interpretations Committee was unable to reach a consensus on whether an entity (the purchaser) recognises a liability at the date of purchasing the asset for variable payments that depend on its future activity or, instead, recognises such a liability only when the related activity occurs. The Interpretations Committee was also unable to reach a consensus on how the purchaser measures a liability for such variable payments.

In deliberating the accounting for variable payments that depend on the purchaser’s future activity, the Interpretations Committee considered the proposed definition of a liability in the May 2015 Exposure Draft

The Conceptual Framework for Financial Reporting

as well as the deliberations of the Board on its project on leases. The Interpretations Committee observed that, during the Board’s deliberations on its project on leases, the Board did not conclude on whether variable payments linked to future performance or use of the underlying asset meet the definition of a liability at commencement of a lease or, instead, meet that definition only at the time that the related performance or use occurs.

In addition, the Interpretations Committee noted that there are questions about the accounting for variable payments subsequent to the purchase of the asset. Accordingly, the Interpretations Committee concluded that the Board should address the accounting for variable payments comprehensively.

The Interpretations Committee determined that this issue is too broad for it to address within the confines of existing IFRS Standards. Consequently, the Interpretations Committee decided not to add this issue to its agenda.]

Examples of directly attributable costs are:

(a)

costs of employee benefits (as defined in

IAS 19

) arising directly from bringing the asset to its working condition;

(b)

professional fees arising directly from bringing the asset to its working condition; and

(c)

costs of testing whether the asset is functioning properly.

Examples of expenditures that are not part of the

cost

of an

intangible asset

are:

(a)

costs of introducing a new product or service (including costs of advertising and promotional activities);

(b)

costs of conducting business in a new location or with a new class of customer (including costs of staff training); and

(c)

administration and other general overhead costs.

Recognition of costs in the

carrying amount

of an

intangible asset

ceases when the asset is in the condition necessary for it to be capable of operating in the manner intended by management. Therefore, costs incurred in using or redeploying an intangible asset are not included in the carrying amount of that asset. For example, the following costs are not included in the carrying amount of an intangible asset:

(a)

costs incurred while an asset capable of operating in the manner intended by management has yet to be brought into use; and

(b)

initial operating losses, such as those incurred while demand for the asset’s output builds up.

Some operations occur in connection with the development of an

intangible asset

, but are not necessary to bring the asset to the condition necessary for it to be capable of operating in the manner intended by management. These incidental operations may occur before or during the development activities. Because incidental operations are not necessary to bring an asset to the condition necessary for it to be capable of operating in the manner intended by management, the income and related expenses of incidental operations are recognised immediately in profit or loss, and included in their respective classifications of income and expense.

If payment for an

intangible asset

is deferred beyond normal credit terms, its cost is the cash price equivalent. The difference between this amount and the total payments is recognised as interest expense over the period of credit unless it is capitalised in accordance with

IAS 23

Borrowing Costs

Acquisition as part of a business combination

[

Refer:

Basis for Conclusions paragraphs BC16A–BC19D

]

In accordance with

IFRS 3

Business Combinations

, if an

intangible asset

is acquired in a business combination, the cost of that intangible asset is its fair value at the acquisition date. The fair value of an intangible asset will reflect market participants’

[

Refer:

IFRS 13 Appendix A

]

expectations

[

Refer:

IFRS 13 paragraphs 3

and

]

at the acquisition date about the probability that the expected future economic benefits embodied in the asset will flow to the entity. In other words, the entity expects there to be an inflow of economic benefits, even if there is uncertainty about the timing or the amount of the inflow. Therefore, the probability recognition criterion in

paragraph 21(a)

is always considered to be satisfied for intangible assets acquired in business combinations. If an asset acquired in a business combination is separable or arises from contractual or other legal rights, sufficient information exists to measure reliably the fair value of the asset. Thus, the reliable measurement criterion in

paragraph 21(b)

is always considered to be satisfied for intangible assets acquired in business combinations.

In accordance with this Standard and

IFRS 3

(as revised in 2008), an acquirer recognises at the acquisition date, separately from goodwill, an

intangible asset

of the acquiree, irrespective of whether the asset had been recognised by the acquiree before the business combination. This means that the acquirer recognises as an asset separately from goodwill an in‑process research and development project of the acquiree if the project meets the definition of an intangible asset. An acquiree’s in‑process research and development project meets the definition of an intangible asset when it:

[

Refer:

Basis for Conclusions paragraphs BC78–BC82

]

(a)

meets the definition of an asset; and

(b)

is identifiable, ie is separable or arises from contractual or other legal rights.

[

Refer:

IFRS 3 paragraphs B31–B40

IFRS 3 Basis for Conclusions paragraphs BC149–BC184

IFRS 3 Illustrative Examples paragraphs IE16–IE44

]

Intangible asset acquired in a business combination

[

Refer:

IFRS 3 paragraph B40

]

If an

intangible asset

acquired in a business combination is separable or arises from contractual or other legal rights, sufficient information exists to measure reliably the fair value of the asset. When, for the estimates used to measure an intangible asset’s fair value, there is a range of possible outcomes with different probabilities, that uncertainty enters into the measurement of the asset’s fair value.

intangible asset

acquired in a business combination might be separable, but only together with a related contract, identifiable asset or liability. In such cases, the acquirer recognises the intangible asset separately from goodwill, but together with the related item.

The acquirer may recognise a group of complementary intangible assets as a single asset provided the individual assets have similar useful lives. For example, the terms ‘brand’ and ‘brand name’ are often used as synonyms for trademarks and other marks. However, the former are general marketing terms that are typically used to refer to a group of complementary assets such as a trademark (or service mark) and its related trade name, formulas, recipes and technological expertise.

38–41

[Deleted]

Subsequent expenditure on an acquired in‑process research and development project

Research

development

expenditure that:

(a)

relates to an in‑process research or development project acquired separately or in a business combination and recognised as an

intangible asset

; and

(b)

is incurred after the acquisition of that project

shall be accounted for in accordance with

paragraphs 54–62

Applying the requirements in

paragraphs 54–62

means that subsequent expenditure on an in‑process

research

development

project acquired separately or in a business combination and recognised as an

intangible asset

is:

(a)

recognised as an expense when incurred if it is research expenditure;

(b)

recognised as an expense when incurred if it is development expenditure that does not satisfy the criteria for recognition as an intangible asset in

paragraph 57

; and

(c)

added to the

carrying amount

of the acquired in‑process research or development project if it is development expenditure that satisfies the recognition criteria in

paragraph 57

Acquisition by way of a government grant

In some cases, an

intangible asset

may be acquired free of charge, or for nominal consideration, by way of a government grant. This may happen when a government transfers or allocates to an entity intangible assets such as airport landing rights, licences to operate radio or television stations, import licences or quotas or rights to access other restricted resources. In accordance with

IAS 20

Accounting for Government Grants and Disclosure of Government Assistance

, an entity may choose to recognise both the intangible asset and the grant initially at fair value. If an entity chooses not to recognise the asset initially at fair value, the entity recognises the asset initially at a nominal amount (the other treatment permitted by

IAS 20

) plus any expenditure that is directly attributable to preparing the asset for its intended use.

Exchanges of assets

One or more

intangible assets

may be acquired in exchange for a non‑monetary asset or assets, or a combination of monetary and non‑monetary assets. The following discussion refers simply to an exchange of one non‑monetary asset for another, but it also applies to all exchanges described in the preceding sentence. The

cost

of such an intangible asset is measured at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. The acquired asset is measured in this way even if an entity cannot immediately derecognise the asset given up. If the acquired asset is not measured at fair value, its cost is measured at the

carrying amount

of the asset given up.

An entity determines whether an exchange transaction has commercial substance by considering the extent to which its future cash flows are expected to change as a result of the transaction. An exchange transaction has commercial substance if:

(a)

the configuration (ie risk, timing and amount) of the cash flows of the

asset

received differs from the configuration of the cash flows of the asset transferred; or

(b)

the

entity‑specific value

of the portion of the entity’s operations affected by the transaction changes as a result of the exchange; and

(c)

the difference in (a) or (b) is significant relative to the fair value of the assets exchanged.

For the purpose of determining whether an exchange transaction has commercial substance, the entity‑specific value of the portion of the entity’s operations affected by the transaction shall reflect post‑tax cash flows. The result of these analyses may be clear without an entity having to perform detailed calculations.

Paragraph 21(b)

specifies that a condition for the recognition of an

intangible asset

is that the

cost

of the asset can be measured reliably. The

fair value

of an intangible asset is reliably measurable if (a) the variability in the range of reasonable fair value measurements is not significant for that asset or (b) the probabilities of the various estimates within the range can be reasonably assessed and used when measuring fair value. If an entity is able to measure reliably the fair value of either the asset received or the asset given up, then the fair value of the asset given up is used to measure

cost

unless the fair value of the asset received is more clearly evident.

Internally generated goodwill

Internally generated goodwill shall not be recognised as an

asset

In some cases, expenditure is incurred to generate future economic benefits,

[

Refer:

paragraph 17

]

but it does not result in the creation of an

intangible asset

that meets the recognition criteria in this Standard. Such expenditure is often described as contributing to internally generated goodwill. Internally generated goodwill is not recognised as an asset because it is not an identifiable resource (ie it is not separable nor does it arise from contractual or other legal rights) controlled by the entity that can be measured reliably at

cost

Differences between the fair value of an entity and the

carrying amount

of its identifiable net assets at any time may capture a range of factors that affect the fair value of the entity. However, such differences do not represent the

cost

intangible assets

controlled by the entity.

Internally generated intangible assets

[

Refer:

Basis for Conclusions paragraphs BCZ29–BCZ46

SIC‑32

]

It is sometimes difficult to assess whether an internally generated

intangible asset

qualifies for recognition because of problems in:

(a)

identifying whether and when there is an identifiable asset that will generate expected future economic benefits;

[

Refer:

paragraph 17

]

and

(b)

determining the cost of the asset reliably. In some cases, the cost of generating an intangible asset internally cannot be distinguished from the cost of maintaining or enhancing the entity’s internally generated goodwill or of running day‑to‑day operations.

Therefore, in addition to complying with the general requirements for the recognition and initial measurement of an intangible asset, an entity applies the requirements and guidance in

paragraphs 52–67

to all internally generated intangible assets.

To assess whether an internally generated

intangible asset

meets the criteria for recognition, an entity classifies the generation of the asset into:

(a)

a research phase;

[

Refer:

paragraphs 54–56

]

and

(b)

a development phase.

[

Refer:

paragraphs 57–64

]

Although the terms ‘

research

’

[

Refer:

paragraph 8 (definition of research)

]

and ‘

development’

[

Refer:

paragraph 8 (definition of development)

]

are defined, the terms ‘research phase’ and ‘development phase’ have a broader meaning for the purpose of this Standard.

If an entity cannot distinguish the research phase

[

Refer:

paragraphs 54–56

]

from the development phase

[

Refer:

paragraphs 57–64

]

of an internal project to create an

intangible asset

, the entity treats the expenditure on that project as if it were incurred in the research phase only.

Research phase

intangible asset

arising from

research

(or from the research phase of an internal project) shall be recognised. Expenditure on research (or on the research phase of an internal project) shall be recognised as an expense when it is incurred.

In the research phase of an internal project, an entity cannot demonstrate that an

intangible asset

exists that will generate probable future economic benefits.

[

Refer:

paragraph 17

]

Therefore, this expenditure is recognised as an expense when it is incurred.

Examples of

research

activities are:

(a)

activities aimed at obtaining new knowledge;

(b)

the search for, evaluation and final selection of, applications of research findings or other knowledge;

(c)

the search for alternatives for materials, devices, products, processes, systems or services; and

(d)

the formulation, design, evaluation and final selection of possible alternatives for new or improved materials, devices, products, processes, systems or services.

Development phase

intangible asset

arising from

development

(or from the development phase of an internal project) shall be recognised if, and only if, an entity can demonstrate all of the following:

(a)

the technical feasibility of completing the intangible asset so that it will be available for use or sale.

(b)

its intention to complete the intangible asset and use or sell it.

(c)

its ability to use or sell the intangible asset.

(d)

how the intangible asset will generate probable future economic benefits.

[

Refer:

paragraph 17

]

Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.

(e)

the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.

(f)

its ability to measure reliably the expenditure attributable to the intangible asset during its development.

In the development phase of an internal project, an entity can, in some instances, identify an

intangible asset

and demonstrate that the asset will generate probable future economic benefits.

[

Refer:

paragraph 17

]

This is because the development phase of a project is further advanced than the research phase

[

Refer:

paragraphs 54–56

]

Examples of development activities are:

(a)

the design, construction and testing of pre‑production or pre‑use prototypes and models;

(b)

the design of tools, jigs, moulds and dies involving new technology;

(c)

the design, construction and operation of a pilot plant that is not of a scale economically feasible for commercial production; and

(d)

the design, construction and testing of a chosen alternative for new or improved materials, devices, products, processes, systems or services.

To demonstrate how an

intangible asset

will generate probable future economic benefits, an entity assesses the future economic benefits

[

Refer:

paragraph 17

]

to be received from the asset using the principles in

IAS 36

Impairment of Assets

. If the asset will generate economic benefits only in combination with other assets, the entity applies the concept of cash‑generating units in

IAS 36

Availability of resources to complete, use and obtain the benefits from an

intangible asset

can be demonstrated by, for example, a business plan showing the technical, financial and other resources needed and the entity’s ability to secure those resources. In some cases, an entity demonstrates the availability of external finance by obtaining a lender’s indication of its willingness to fund the plan.

An entity’s costing systems can often measure reliably the cost of generating an

intangible asset

internally, such as salary and other expenditure incurred in securing copyrights or licences or developing computer software.

Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall not be recognised as

intangible assets

Expenditure on internally generated brands, mastheads, publishing titles, customer lists and items similar in substance cannot be distinguished from the cost of developing the business as a whole. Therefore, such items are not recognised as

intangible assets

Cost of an internally generated intangible asset

The

cost

of an internally generated intangible asset for the purpose of

paragraph 24

is the sum of expenditure incurred from the date when the intangible asset first meets the recognition criteria in

paragraphs 21,

and 57

Paragraph 71

prohibits reinstatement of expenditure previously recognised as an expense.

The

cost

of an internally generated

intangible asset

comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. Examples of directly attributable costs are:

(a)

costs of materials and services used or consumed in generating the intangible asset;

(b)

costs of employee benefits (as defined in

IAS 19

) arising from the generation of the intangible asset;

(c)

fees to register a legal right; and

(d)

amortisation

of patents and licences that are used to generate the intangible asset.

IAS 23

specifies criteria for the recognition of interest as an element of the cost of an internally generated intangible asset.

The following are not components of the

cost

of an internally generated

intangible asset

(a)

selling, administrative and other general overhead expenditure unless this expenditure can be directly attributed to preparing the asset for use;

(b)

identified inefficiencies and initial operating losses incurred before the asset achieves planned performance; and

(c)

expenditure on training staff to operate the asset.

Example illustrating

paragraph 65

An entity is developing a new production process. During 20X5, expenditure incurred was CU1,000,

(a)

of which CU900 was incurred before 1 December 20X5 and CU100 was incurred between 1 December 20X5 and 31 December 20X5. The entity is able to demonstrate that, at 1 December 20X5, the production process met the criteria for recognition as an intangible asset. The recoverable amount of the know‑how embodied in the process (including future cash outflows to complete the process before it is available for use) is estimated to be CU500.

At the end of 20X5, the production process is recognised as an intangible asset at a cost of CU100 (expenditure incurred since the date when the recognition criteria were met, ie 1 December 20X5). The CU900 expenditure incurred before 1 December 20X5 is recognised as an expense because the recognition criteria were not met until 1 December 20X5. This expenditure does not form part of the cost of the production process recognised in the statement of financial position.

During 20X6, expenditure incurred is CU2,000. At the end of 20X6, the recoverable amount of the know‑how embodied in the process (including future cash outflows to complete the process before it is available for use) is estimated to be CU1,900.

At the end of 20X6, the cost of the production process is CU2,100 (CU100 expenditure recognised at the end of 20X5 plus CU2,000 expenditure recognised in 20X6). The entity recognises an impairment loss of CU200 to adjust the carrying amount of the process before impairment loss (CU2,100) to its recoverable amount (CU1,900). This impairment loss will be reversed in a subsequent period if the requirements for the reversal of an impairment loss in IAS 36 are met.

(a)

In this Standard, monetary amounts are denominated in ‘currency units (CU)’.

Recognition of an expense

[

Refer:

Basis for Conclusions paragraphs BC46A–BC46I

]

Expenditure on an intangible item shall be recognised as an expense when it is incurred unless:

(a)

it forms part of the

cost

of an

intangible asset

that meets the recognition criteria (see

paragraphs 18–67

); or

(b)

the item is acquired in a business combination and cannot be recognised as an intangible asset. If this is the case, it forms part of the amount recognised as goodwill at the acquisition date (see

IFRS 3

In some cases, expenditure is incurred to provide future economic benefits

[

Refer:

paragraph 17

]

to an entity, but no

intangible asset

or other

asset

is acquired or created that can be recognised. In the case of the supply of goods, the entity recognises such expenditure as an expense when it has a right to access those goods. In the case of the supply of services, the entity recognises the expenditure as an expense when it receives the services. For example,

[

Refer:

IFRS 3 paragraphs 10–20

]

expenditure on research is recognised as an expense when it is incurred (see

paragraph 54

), except when it is acquired as part of a business combination. Other examples of expenditure that is recognised as an expense when it is incurred include:

(a)

expenditure on start‑up activities (ie start‑up costs), unless this expenditure is included in the cost of an item of property, plant and equipment in accordance with

IAS 16

[

Refer:

IAS 16 paragraphs 7–28

]

Start‑up costs may consist of establishment costs such as legal and secretarial costs incurred in establishing a legal entity, expenditure to open a new facility or business (ie pre‑opening costs) or expenditures for starting new operations or launching new products or processes (ie pre‑operating costs).

(b)

expenditure on training activities.

(c)

expenditure on advertising and promotional activities (including mail order catalogues).

(d)

expenditure on relocating or reorganising part or all of an entity.

[IFRIC®

Update

, September 2017, Agenda Decision, ‘IAS 38

Intangible Assets

—

Goods acquired for promotional activities

’

The Committee received a request about how an entity accounts for goods it distributes as part of its promotional activities. In the fact pattern described in the request, a pharmaceutical entity acquires goods (such as refrigerators, air conditioners and watches) to distribute to doctors as part of its promotional activities. The entity and the doctors do not enter into agreements that create enforceable rights and obligations in relation to those goods. The request asked how the entity accounts for any such goods that remain undistributed at its reporting date.

Paragraph 5 of IAS 38 states that IAS 38 applies to expenditure on advertising activities. Accordingly, the Committee concluded that if an entity acquires goods solely to be used to undertake advertising or promotional activities, it applies the requirements in paragraph 69 of IAS 38. Paragraph 69 requires an entity to recognise expenditure on such goods as an expense when the entity has a right to access those goods. Paragraph 69A of IAS 38 states that an entity has a right to access goods when it owns them. The entity, therefore, recognises expenditure on those goods as an expense when it owns the goods, or otherwise has a right to access them regardless of when it distributes the goods.

In explaining the Board’s rationale for the requirements in paragraph 69, paragraph BC46B of IAS 38 states that goods acquired to be used to undertake advertising and promotional activities have no other purpose than to undertake those activities. In other words, the only benefit of those goods for the entity is to develop or create brands or customer relationships, which in turn generate revenues. However, applying IAS 38, the entity does not recognise internally generated brands or customer relationships as assets.

The Committee concluded that the requirements in IFRS Standards provide an adequate basis for an entity to account for the goods described in the request. Consequently, the Committee decided not to add this matter to its standard-setting‑agenda.]

69A

An entity has a right to access goods when it owns them. Similarly, it has a right to access goods when they have been constructed by a supplier in accordance with the terms of a supply contract and the entity could demand delivery of them in return for payment. Services are received when they are performed by a supplier in accordance with a contract to deliver them to the entity and not when the entity uses them to deliver another service, for example, to deliver an advertisement to customers.

E10

[IFRIC®

Update

, March 2021, Agenda Decision, ‘

IAS 38

Intangible Assets

—Configuration or Customisation Costs in a Cloud Computing Arrangement’

the customer incurs costs of configuring or customising the supplier’s application software to which the customer receives access. The request describes configuration and customisation as follows:

ii.

customisation involves modifying the software code in the application or writing additional code. Customisation generally changes, or creates additional, functionalities within the software.

the customer receives no other goods or services.

In analysing the request, the Committee considered:

whether, applying IAS 38, the customer recognises an intangible asset in relation to configuration or customisation of the application software (Question I).

if an intangible asset is not recognised, how the customer accounts for the configuration or customisation costs (Question II).

Does the customer recognise an intangible asset in relation to configuration or customisation of the application software (Question I)?

If an intangible asset is not recognised, how does the customer account for the configuration or customisation costs (Question II)?

If the customer does not recognise an intangible asset in relation to configuration or customisation of the application software, it applies paragraphs 68–70 of IAS 38 to account for those costs. The Committee observed that:

the customer recognises the costs as an expense when it receives the configuration or customisation services (paragraph 69). Paragraph 69A specifies that ‘services are received when they are performed by a supplier in accordance with a contract to deliver them to the entity and not when the entity uses them to deliver another service’. In assessing when to recognise the costs as an expense, IAS 38 therefore requires the customer to determine when the supplier performs the configuration or customisation services in accordance with the contract to deliver those services.

IAS 38 includes no requirements that deal with the identification of the services the customer receives in determining when the supplier performs those services in accordance with the contract to deliver them. Paragraphs 10–11 of

IAS 8

Accounting Policies, Changes in Accounting Estimates and Errors

[now

IAS 8

Basis of Preparation of Financial Statements

] require the customer to refer to, and consider the applicability of, the requirements in IFRS Standards that deal with similar and related issues. The Committee observed that

IFRS 15

Revenue from Contracts with Customers

includes requirements that suppliers apply in identifying the promised goods or services in a contract with a customer. For the fact pattern described in the request, those requirements in IFRS 15 deal with issues similar and related to those faced by the customer in determining when the supplier performs the configuration or customisation services in accordance with the contract to deliver those services.

if the contract to deliver the configuration or customisation services to the customer is with the supplier of the application software (including cases in which the supplier subcontracts services to a third party), the customer applies paragraphs 69–69A of IAS 38 and determines when the supplier of the application software performs those services in accordance with the contract to deliver them as follows:

if the services the customer receives are distinct, then the customer recognises the costs as an expense when the supplier configures or customises the application software.

ii.

if the services the customer receives are not distinct (because those services are not separately identifiable from the customer’s right to receive access to the supplier’s application software), then the customer recognises the costs as an expense when the supplier provides access to the application software over the contract term.

if the contract to deliver the configuration or customisation services to the customer is with a third-party supplier, the customer applies paragraphs 69–69A of IAS 38 and determines when the third-party supplier performs those services in accordance with the contract to deliver them. In applying these requirements, the customer recognises the costs as an expense when the third-party supplier configures or customises the application software.

if the customer pays the supplier of the configuration or customisation services before receiving those services, it recognises the prepayment as an asset (paragraph 70 of IAS 38).

Paragraphs 117–124

IAS 1

Presentation of Financial Statements

[now

paragraphs 27A–27I

IAS 8

] require the customer to disclose its accounting policy for configuration or customisation costs when that disclosure is relevant to an understanding of its financial statements.

Paragraph 68

does not preclude an entity from recognising a prepayment as an

asset

when payment for goods has been made in advance of the entity obtaining a right to access those goods. Similarly,

paragraph 68

does not preclude an entity from recognising a prepayment as an asset when payment for services has been made in advance of the entity receiving those services.

Past expenses not to be recognised as an asset

Expenditure on an intangible item that was initially recognised as an expense shall not be recognised as part of the

cost

of an

intangible asset

at a later date.

Measurement after recognition

An entity shall choose either the cost model in

paragraph 74

or the revaluation model in

paragraph 75

as its accounting policy. If an

intangible asset

is accounted for using the revaluation model, all the other assets in its class

[

Refer:

paragraph 73

]

shall also be accounted for using the same model, unless there is no active market for those assets.

A class of

intangible assets

is a grouping of assets of a similar nature and use in an entity’s operations.

[

Refer:

paragraph 119

]

The items within a class of intangible assets are revalued simultaneously to avoid selective revaluation of assets and the reporting of amounts in the financial statements representing a mixture of costs and values as at different dates.

Cost model

After initial recognition, an

intangible asset

shall be carried at its

cost

less any accumulated

amortisation

and any accumulated

impairment losses

Revaluation model

After initial recognition, an

intangible asset

shall be carried at a revalued amount, being its

fair value

at the date of the revaluation less any subsequent accumulated

amortisation

and any subsequent accumulated

impairment losses

. For the purpose of revaluations under this Standard, fair value shall be measured by reference to an

active market

[

Refer:

IFRS 13 Appendix A

]

Revaluations shall be made with such regularity that at the end of the reporting period the

carrying amount

of the asset does not differ materially from its fair value.

The revaluation model does not allow:

(a)

the revaluation of

intangible assets

that have not previously been recognised as assets; or

(b)

the initial recognition of intangible assets at amounts other than

cost

The revaluation model is applied after an asset has been initially recognised at

cost

. However, if only part of the cost of an

intangible asset

is recognised as an asset because the asset did not meet the criteria for recognition until part of the way through the process (see

paragraph 65

), the revaluation model may be applied to the whole of that asset. Also, the revaluation model may be applied to an intangible asset that was received by way of a government grant and recognised at a nominal amount (see

paragraph 44

It is uncommon for an active market to exist for an

intangible asset

, although this may happen. For example, in some jurisdictions, an active market may exist for freely transferable taxi licences, fishing licences or production quotas. However, an active market cannot exist for brands, newspaper mastheads, music and film publishing rights, patents or trademarks, because each such asset is unique. Also, although intangible assets are bought and sold, contracts are negotiated between individual buyers and sellers, and transactions are relatively infrequent. For these reasons, the price paid for one asset may not provide sufficient evidence of the fair value of another. Moreover, prices are often not available to the public.

The frequency of revaluations depends on the volatility of the

fair values

of the

intangible assets

being revalued. If the fair value of a revalued asset differs materially from its carrying amount, a further revaluation is necessary. Some intangible assets may experience significant and volatile movements in fair value, thus necessitating annual revaluation. Such frequent revaluations are unnecessary for intangible assets with only insignificant movements in fair value.

When an

intangible asset

is revalued, the

carrying amount

of that asset is adjusted to the revalued amount. At the date of the revaluation, the asset is treated in one of the following ways:

(a)

the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. For example, the gross carrying amount may be restated by reference to observable market data or it may be restated proportionately to the change in the carrying amount. The accumulated amortisation at the date of the revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account accumulated impairment losses

[

Refer:

paragraph 85

and

IAS 36 paragraph 119

]

; or

[

Refer:

Basis for Conclusions paragraphs BC77A–BC77E

]

(b)

the accumulated amortisation is eliminated against the gross carrying amount of the asset.

[

Refer:

Basis for Conclusions paragraph BC77D

]

The amount of the adjustment of accumulated amortisation forms part of the increase or decrease in the

carrying amount

that is accounted for in accordance with

paragraphs 85 and 86

If an

intangible asset

in a class

[

Refer:

paragraphs 73

and

119

]

of revalued intangible assets cannot be revalued because there is no active market for this asset, the asset shall be carried at its

cost

less any accumulated

amortisation

and

impairment losses

If the

fair value

of a revalued

intangible asset

can no longer be measured by reference to an active market, the

carrying amount

of the asset shall be its revalued amount at the date of the last revaluation by reference to the active market less any subsequent accumulated

amortisation

and any subsequent accumulated

impairment losses.

The fact that an active market no longer exists for a revalued

intangible asset

may indicate that the asset may be impaired and that it needs to be tested in accordance with

IAS 36

If the fair value of the asset can be measured by reference to an active market at a subsequent measurement date, the revaluation model is applied from that date.

If an

intangible asset’s

carrying amount

is increased as a result of a revaluation, the increase shall be recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus. However, the increase shall be recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss.

If an

intangible asset’s

carrying amount

is decreased as a result of a revaluation, the decrease shall be recognised in profit or loss. However, the decrease shall be recognised in other comprehensive income to the extent of any credit balance in the revaluation surplus in respect of that asset. The decrease recognised in other comprehensive income reduces the amount accumulated in equity under the heading of revaluation surplus.

The cumulative revaluation surplus included in equity may be transferred directly to retained earnings when the surplus is realised. The whole surplus may be realised on the retirement or disposal of the asset. However, some of the surplus may be realised as the asset is used by the entity; in such a case, the amount of the surplus realised is the difference between

amortisation

based on the revalued

carrying amount

of the asset and amortisation that would have been recognised based on the asset’s historical cost. The transfer from revaluation surplus to retained earnings is not made through profit or loss.

Useful life

An entity shall assess whether the

useful life

of an

intangible asset

is finite or indefinite and, if finite, the length of, or number of production or similar units constituting, that useful life. An intangible asset shall be regarded by the entity as having an indefinite useful life when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.

The accounting for an

intangible asset

is based on its

useful life

. An intangible asset with a finite useful life is amortised (see

paragraphs 97–106

), and an intangible asset with an indefinite useful life is not (see

paragraphs 107–110

). The Illustrative Examples accompanying this Standard illustrate the determination of useful life for different intangible assets, and the subsequent accounting for those assets based on the useful life determinations.

Many factors are considered in determining the

useful life

of an

intangible asset

, including:

(a)

the expected usage of the asset by the entity and whether the asset could be managed efficiently by another management team;

(b)

typical product life cycles for the asset and public information on estimates of useful lives of similar assets that are used in a similar way;

(c)

technical, technological, commercial or other types of obsolescence;

(d)

the stability of the industry in which the asset operates and changes in the market demand for the products or services output from the asset;

(e)

expected actions by competitors or potential competitors;

(f)

the level of maintenance expenditure required to obtain the expected future economic benefits

[

Refer:

paragraph 17

]

from the asset and the entity’s ability and intention to reach such a level;

(g)

the period of control over the asset and legal or similar limits on the use of the asset, such as the expiry dates of related leases; and

(h)

whether the useful life of the asset is dependent on the useful life of other assets of the entity.

The term ‘indefinite’ does not mean ‘infinite’. The

useful life

of an

intangible asset

reflects only that level of future maintenance expenditure required to maintain the asset at its standard of performance assessed at the time of estimating the asset’s useful life, and the entity’s ability and intention to reach such a level. A conclusion that the useful life of an intangible asset is indefinite should not depend on planned future expenditure in excess of that required to maintain the asset at that standard of performance.

Given the history of rapid changes in technology, computer software and many other intangible assets are susceptible to technological obsolescence. Therefore, it will often be the case that their useful life is short. Expected future reductions in the selling price of an item that was produced using an intangible asset could indicate the expectation of technological or commercial obsolescence of the asset, which, in turn, might reflect a reduction of the future economic benefits embodied in the asset.

[

Refer:

Basis for Conclusions paragraph BC72K

]

The

useful life

of an

intangible asset

may be very long or even indefinite. Uncertainty justifies estimating the useful life of an intangible asset on a prudent basis, but it does not justify choosing a life that is unrealistically short.

The

useful life

of an

intangible asset

that arises from contractual or other legal rights shall not exceed the period of the contractual or other legal rights, but may be shorter depending on the period over which the entity expects to use the asset. If the contractual or other legal rights are conveyed for a limited term that can be renewed, the useful life of the intangible asset shall include the renewal period(s) only if there is evidence to support renewal by the entity without significant cost. The useful life of a reacquired right recognised as an intangible asset in a business combination is the remaining contractual period of the contract in which the right was granted and shall not include renewal periods.

[

Refer:

Basis for Conclusions paragraphs BC66–BC72

]

There may be both economic and legal factors influencing the

useful life

of an

intangible asset.

Economic factors determine the period over which future economic benefits will be received by the entity. Legal factors may restrict the period over which the entity controls access to these benefits.

[

Refer:

paragraph 17

]

The useful life is the shorter of the periods determined by these factors.

Existence of the following factors, among others, indicates that an entity would be able to renew the contractual or other legal rights without significant cost:

(a)

there is evidence, possibly based on experience, that the contractual or other legal rights will be renewed. If renewal is contingent upon the consent of a third party, this includes evidence that the third party will give its consent;

(b)

there is evidence that any conditions necessary to obtain renewal will be satisfied; and

(c)

the cost to the entity of renewal is not significant when compared with the future economic benefits

[

Refer:

paragraph 17

]

expected to flow to the entity from renewal.

If the cost of renewal is significant when compared with the future economic benefits expected to flow to the entity from renewal, the ‘renewal’ cost represents, in substance, the cost to acquire a new

intangible asset

at the renewal date.

Intangible assets with finite useful lives

Amortisation period and amortisation method

[

Refer:

Basis for Conclusions paragraphs BC72A–BC72L

]

The

depreciable amount

of an

intangible asset

with a finite

useful life

shall be allocated on a systematic basis over its useful life.

Amortisation

shall begin when the asset is available for use, ie when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Amortisation shall cease at the earlier of the date that the asset is classified as held for sale (or included in a disposal group that is classified as held for sale)

[

Refer:

IFRS 5 paragraphs 6–14

]

in accordance with

IFRS 5

and the date that the asset is derecognised. The amortisation method used shall reflect the pattern in which the asset’s future economic benefits

[

Refer:

paragraph 17

]

are expected to be consumed by the entity.

E11

If that pattern cannot be determined reliably, the straight‑line method shall be used. The amortisation charge for each period shall be recognised in profit or loss unless this or another Standard permits or requires it to be included in the

carrying amount

of another asset.

E11

[IFRIC®

Update

, January 2010, Agenda Decision, ‘IAS 38

Intangible Assets

—Amortisation method’

The IFRIC received requests for guidance on the meaning of ‘consumption of economic benefits’ when determining the appropriate amortisation method for an intangible asset with a finite useful life. The methods considered in the submissions are the straight‑line method and the unit of production method (including a revenue‑based unit of production method).

The IFRIC noted that paragraph 98 of IAS 38 states that ‘the method used is based on the expected pattern of consumption of the expected future economic benefits embodied in the asset…’ Some members of the IFRIC believed that an interpretation could assist in reducing diversity in the implementation of this principle, while others considered that any guidance would be in the nature of application guidance. The IFRIC noted that the determination of the amortisation method is therefore a matter of judgement. In addition, in accordance with

paragraph 122

IAS 1

Presentation of Financial Statements

[now

paragraph 27G

IAS 8

Basis of Preparation of Financial Statements

], significant judgements made in determining the amortisation methods should be disclosed in the notes to the financial statements.

Given the diversity of views, the IFRIC concluded that it would not be able to reach a consensus on the issue on a timely basis. Therefore, the IFRIC decided not to add the issue to its agenda.]

A variety of amortisation methods can be used to allocate the

depreciable amount

of an asset on a systematic basis over its

useful life.

These methods include the straight‑line method, the diminishing balance method and the units of production method. The method used is selected on the basis of the expected pattern of consumption of the expected future economic benefits

[

Refer:

paragraph 17

]

embodied in the asset and is applied consistently from period to period, unless there is a change in the expected pattern of consumption of those future economic benefits.

[

Refer:

paragraphs 98A–98C

]

98A

There is a rebuttable presumption that an amortisation method that is based on the revenue generated by an activity that includes the use of an intangible asset is inappropriate.

[

Refer:

Basis for Conclusions paragraphs BC72E–BC72F

]

The revenue generated by an activity that includes the use of an intangible asset typically reflects factors that are not directly linked to the consumption of the economic benefits embodied in the intangible asset. For example, revenue is affected by other inputs and processes, selling activities and changes in sales volumes and prices. The price component of revenue may be affected by inflation, which has no bearing upon the way in which an asset is consumed. This presumption can be overcome only in the limited circumstances:

(a)

in which the intangible asset is expressed as a measure of revenue, as described in

paragraph 98C

; or

(b)

when it can be demonstrated that revenue and the consumption of the economic benefits of the intangible asset are highly correlated.

[

Refer:

Basis for Conclusions paragraph BC72G

]

98B

In choosing an appropriate amortisation method in accordance with

paragraph 98

, an entity could determine the predominant limiting factor that is inherent in the intangible asset. For example, the contract that sets out the entity’s rights over its use of an intangible asset might specify the entity’s use of the intangible asset as a predetermined number of years (ie time), as a number of units produced or as a fixed total amount of revenue to be generated. Identification of such a predominant limiting factor could serve as the starting point for the identification of the appropriate basis of amortisation, but another basis may be applied if it more closely reflects the expected pattern of consumption of economic benefits.

[

Refer:

Basis for Conclusions paragraph BC72J

]

98C

In the circumstance in which the predominant limiting factor that is inherent in an intangible asset is the achievement of a revenue threshold, the revenue to be generated can be an appropriate basis for amortisation. For example, an entity could acquire a concession to explore and extract gold from a gold mine. The expiry of the contract might be based on a fixed amount of total revenue to be generated from the extraction (for example, a contract may allow the extraction of gold from the mine until total cumulative revenue from the sale of gold reaches CU2 billion) and not be based on time or on the amount of gold extracted. In another example, the right to operate a toll road could be based on a fixed total amount of revenue to be generated from cumulative tolls charged (for example, a contract could allow operation of the toll road until the cumulative amount of tolls generated from operating the road reaches CU100 million). In the case in which revenue has been established as the predominant limiting factor in the contract for the use of the intangible asset, the revenue that is to be generated might be an appropriate basis for amortising the intangible asset, provided that the contract specifies a fixed total amount of revenue to be generated on which amortisation is to be determined.

[

Refer:

paragraph 98A(a)

]

Amortisation

is usually recognised in profit or loss. However, sometimes the future economic benefits

[

Refer:

paragraph 17

]

embodied in an asset are absorbed in producing other assets. In this case, the amortisation charge constitutes part of the cost of the other asset and is included in its carrying amount. For example, the amortisation of

intangible assets

used in a production process is included in the carrying amount of inventories (see

IAS 2

Inventories

Residual value

[

Refer:

Basis for Conclusions paragraphs BC57–BC59

]

100

The

residual value

of an

intangible asset

with a finite

useful life

shall be assumed to be zero unless:

(a)

there is a commitment by a third party to purchase the asset at the end of its useful life; or

[

Refer:

Illustrative Examples, example 2

]

(b)

there is an

active market

(as defined in IFRS 13

[

Refer:

IFRS 13 Appendix A

]

) for the asset and:

(i)

residual value can be determined by reference to that market; and

(ii)

it is probable that such a market will exist at the end of the asset’s useful life.

101

The

depreciable amount

of an

asset

with a finite

useful life

is determined after deducting its residual value. A residual value other than zero implies that an entity expects to dispose of the intangible asset before the end of its economic life.

102

An estimate of an asset’s

residual value

is based on the amount recoverable from disposal using prices prevailing at the date of the estimate for the sale of a similar asset that has reached the end of its

useful life

and has operated under conditions similar to those in which the asset will be used. The residual value is reviewed at least at each financial year‑end. A change in the asset’s residual value is accounted for as a change in an accounting estimate in accordance with

IAS 8

Basis of Preparation of Financial Statements

[

Refer:

IAS 8 paragraphs 32–40

]

103

The

residual value

of an

intangible asset

may increase to an amount equal to or greater than the asset’s

carrying amount

. If it does, the asset’s

amortisation

charge is zero unless and until its residual value subsequently decreases to an amount below the asset’s carrying amount.

Review of amortisation period and amortisation method

104

The

amortisation

period and the amortisation method for an

intangible asset

with a finite useful life shall be reviewed at least at each financial year‑end. If the expected useful life of the asset is different from previous estimates, the amortisation period shall be changed accordingly. If there has been a change in the expected pattern of consumption of the future economic benefits

[

Refer:

paragraph 17

]

embodied in the asset, the amortisation method shall be changed to reflect the changed pattern. Such changes shall be accounted for as changes in accounting estimates in accordance with

IAS 8

[

Refer:

IAS 8 paragraphs 32–40

]

105

During the life of an

intangible asset

, it may become apparent that the estimate of its

useful life

is inappropriate. For example, the recognition of an

impairment loss

may indicate that the

amortisation

period needs to be changed.

106

Over time, the pattern of future economic benefits

[

Refer:

paragraph 17

]

expected to flow to an entity from an

intangible asset

may change. For example, it may become apparent that a diminishing balance method of

amortisation

is appropriate rather than a straight‑line method. Another example is if use of the rights represented by a licence is deferred pending action on other components of the business plan. In this case, economic benefits that flow from the asset may not be received until later periods.

Intangible assets with indefinite useful lives

107

intangible asset

with an indefinite

useful life

shall not be

amortised

108

In accordance with

IAS 36

, an entity is required to test an

intangible asset

with an indefinite useful life for impairment by comparing its recoverable amount with its

carrying amount

(a)

annually, and

[

Refer:

IAS 36 paragraph 10

]

(b)

whenever there is an indication that the intangible asset may be impaired.

[

Refer:

IAS 36 paragraph 9

]

Review of useful life assessment

109

The

useful life

of an

intangible asset

that is not being amortised shall be reviewed each period to determine whether events and circumstances continue to support an indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite shall be accounted for as a change in an accounting estimate in accordance with

IAS 8

[

Refer:

IAS 8 paragraphs 32–40

]

110

In accordance with

IAS 36

, reassessing the

useful life

of an

intangible asset

as finite rather than indefinite is an indicator that the asset may be impaired. As a result, the entity tests the asset for impairment by comparing its recoverable amount, determined in accordance with

IAS 36

[

Refer:

IAS 36 paragraphs 18–57

]

with its carrying amount, and recognising any excess of the

carrying amount

over the recoverable amount as an

impairment loss

Recoverability of the carrying amount—impairment losses

[

Refer:

Basis for Conclusions paragraphs BC54–BC56

]

111

To determine whether an

intangible asset

is impaired, an entity applies

IAS 36

. That Standard explains when and how an entity reviews the

carrying amount

[

Refer:

IAS 36 paragraphs 7–17

]

of its assets, how it determines the recoverable amount

[

Refer:

IAS 36 paragraphs 18–57

]

of an asset and when it recognises

[

Refer:

IAS 36 paragraphs 58–108

]

or reverses

[

Refer:

IAS 36 paragraphs 109–125

]

impairment loss.

Retirements and disposals

112

intangible asset

shall be derecognised:

(a)

on disposal; or

(b)

when no future economic benefits

[

Refer:

paragraph 17

]

are expected from its use or disposal.

113

The gain or loss arising from the derecognition of an

intangible asset

shall be determined as the difference between the net disposal proceeds, if any, and the

carrying amount

of the asset. It shall be recognised in profit or loss when the asset is derecognised (unless

IFRS 16

requires otherwise on a sale and leaseback.

[

Refer:

IFRS 16 paragraphs 98–103

]

) Gains shall not be classified as revenue

[

Refer:

IFRS 15 Appendix A (definition of revenue)

]

E12

[IFRIC®

Update

, June 2020, Agenda Decision, ‘

IAS 38

Intangible Assets

—Player Transfer Payments’

The Committee received a request about the recognition of player transfer payments received. In the fact pattern described in the request:

a football club (entity) transfers a player to another club (receiving club). When the entity recruited the player, the entity registered the player in an electronic transfer system. Registration means the player is prohibited from playing for another club, and requires the registering club to have an employment contract with the player that prevents the player from leaving the club without mutual agreement. Together the employment contract and registration in the electronic transfer system are referred to as a ‘registration right’.

the entity had recognised costs incurred to obtain the registration right as an intangible asset applying IAS 38. As part of its ordinary activities, the entity uses and develops the player through participation in matches, and then potentially transfers the player to another club.

the entity and the receiving club enter into a transfer agreement under which the entity receives a transfer payment from the receiving club. The transfer payment compensates the entity for releasing the player from the employment contract before the contract ends. The registration in the electronic transfer system is not transferred to the receiving club but, legally, is extinguished when the receiving club registers the player and obtains a new right.

the entity derecognises its intangible asset upon the receiving club registering the player in the electronic transfer system.

The request asked whether the entity recognises the transfer payment received as revenue applying

IFRS 15

Revenue from Contracts with Customers

or, instead, recognises the gain or loss arising from the derecognition of the intangible asset in profit or loss applying IAS 38.

Recognition of transfer payment received

In the fact pattern described in the request, the entity recognised the registration right as an intangible asset applying IAS 38. Accordingly, the entity applies the derecognition requirements in IAS 38 on derecognition of that right.

Paragraph 113 of IAS 38 states that ‘the gain or loss arising from the derecognition of an intangible asset shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset. It shall be recognised in profit or loss when the asset is derecognised … Gains shall not be classified as revenue’. Applying that paragraph, the entity recognises in profit or loss, but not as revenue, the difference between the net disposal proceeds and the carrying amount of the registration right.

Does the transfer payment represent disposal proceeds?

The transfer payment arises from the transfer agreement, which requires the entity to release the player from the employment contract. The entity is therefore required to undertake some action for the right to be extinguished. Accordingly, the transfer payment compensates the entity for its action in disposing of the registration right and, thus, is part of the net disposal proceeds described in paragraph 113 of IAS 38.

The Committee concluded that, in the fact pattern described in the request, the entity recognises the transfer payment received as part of the gain or loss arising from the derecognition of the registration right applying paragraph 113 of IAS 38. In the fact pattern described in the request (in which the entity recognises the registration right as an intangible asset), the entity does not recognise the transfer payment received, or any gain arising, as revenue applying IFRS 15.

Statement of cash flows

IAS 7

Statement of Cash Flows

lists cash receipts from sales of intangibles as an example of cash flows arising from investing activities. Accordingly, in the fact pattern described in the request, the entity presents cash receipts from transfer payments as part of investing activities.

The Committee concluded that the principles and requirements in IFRS Standards provide an adequate basis for the entity to determine the recognition of player transfer payments received. Consequently, the Committee decided not to add the matter to its standard-setting agenda.]

114

The disposal of an

intangible asset

may occur in a variety of ways (eg by sale, by entering into a finance lease,

[

Refer:

IFRS 16 Appendix A (definition of finance lease)

]

or by donation). The date of disposal of an intangible asset is the date that the recipient obtains control of that

asset

in accordance with the requirements for determining when a performance obligation is satisfied in

IFRS 15

[

Refer:

IFRS 15 paragraph 31

]

IFRS 16

applies to disposal by a sale and leaseback.

[

Refer:

IFRS 16 paragraphs 98–103

]

115

If in accordance with the recognition principle in

paragraph 21

an entity recognises in the

carrying amount

of an asset the cost of a replacement for part of an

intangible asset

, then it derecognises the carrying amount of the replaced part. If it is not practicable for an entity to determine the carrying amount of the replaced part, it may use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or internally generated.

115A

In the case of a reacquired right in a business combination, if the right is subsequently reissued (sold) to a third party, the related carrying amount, if any, shall be used in determining the gain or loss on reissue.

116

The amount of consideration to be included in the gain or loss arising from the derecognition of an

intangible asset

is determined in accordance with the requirements for determining the transaction price in

paragraphs 47–72 of IFRS 15

. Subsequent changes to the estimated amount of the consideration included in the gain or loss shall be accounted for in accordance with the requirements for changes in the transaction price in

IFRS 15

[

Refer:

IFRS 15 paragraphs 87–90

]

117

Amortisation

of an

intangible asset

with a finite

useful life

does not cease when the intangible asset is no longer used, unless the asset has been fully depreciated or is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with

IFRS 5

[

Refer:

IFRS 5 paragraphs 6–14

]

Disclosure

General

118

An entity shall disclose the following for each class

[

Refer:

paragraph 119

]

intangible assets

, distinguishing between internally generated intangible assets and other intangible assets:

(a)

whether the

useful lives

are indefinite or finite and, if finite, the useful lives or the

amortisation

rates used;

(b)

the amortisation methods used for intangible assets with finite useful lives;

(c)

the gross carrying amount and any accumulated amortisation (aggregated with accumulated

impairment losses

) at the beginning and end of the period;

(d)

the line item(s) of the statement of comprehensive income in which any amortisation of intangible assets is included;

(e)

a reconciliation of the

carrying amount

at the beginning and end of the period showing:

(i)

additions, indicating separately those from internal development, those acquired separately, and those acquired through business combinations;

(ii)

assets classified as held for sale or included in a disposal group classified as held for sale in accordance with

IFRS 5

[

Refer:

IFRS 5 paragraphs 6–14

]

and other disposals;

(iii)

increases or decreases during the period resulting from revaluations under

paragraphs 75

85 and 86

and from

impairment losses

recognised

[

Refer:

IAS 36 paragraphs 60

and

]

or reversed

[

Refer:

IAS 36 paragraphs 119

and

120

]

in other comprehensive income in accordance with

IAS 36

(if any);

(iv)

impairment losses recognised in profit or loss during the period in accordance with

IAS 36

(if any);

[

Refer:

IAS 36 paragraph 60

]

(v)

impairment losses reversed in profit or loss during the period in accordance with

IAS 36

(if any);

[

Refer:

IAS 36 paragraph 119

]

(vi)

any

amortisation

recognised during the period;

(vii)

net exchange differences arising on the translation of the financial statements into the presentation currency, and on the translation of a foreign operation into the presentation currency of the entity;

[

Refer:

IAS 21

]

and

(viii)

other changes in the carrying amount during the period.

119

A class

[

Refer:

paragraph 73

]

intangible assets

is a grouping of assets of a similar nature and use in an entity’s operations. Examples of separate classes may include:

(a)

brand names;

(b)

mastheads and publishing titles;

(c)

computer software;

(d)

licences and franchises;

(e)

copyrights, patents and other industrial property rights, service and operating rights;

(f)

recipes, formulae, models, designs and prototypes; and

(g)

intangible assets under development.

The classes mentioned above are disaggregated (aggregated) into smaller (larger) classes if this results in more relevant information for the users of the financial statements.

120

An entity discloses information on impaired

intangible assets

in accordance with

IAS 36

[

Refer:

IAS 36 paragraphs 126–137

]

in addition to the information required by

paragraph 118(e)(iii)–(v)

121

IAS 8

requires an entity to disclose the nature and amount of a change in an accounting estimate

[

Refer:

IAS 8 paragraph 39

]

that has a material effect in the current period or is expected to have a material effect in subsequent periods. Such disclosure may arise from changes in:

(a)

the assessment of an

intangible asset’s

useful life

;

(b)

the

amortisation

method; or

(c)

residual values

122

An entity shall also disclose:

(a)

for an

intangible asset

assessed as having an indefinite

useful life

, the

carrying amount

of that asset and the reasons supporting the assessment of an indefinite useful life. In giving these reasons, the entity shall describe the factor(s) that played a significant role in determining that the asset has an indefinite useful life.

(b)

a description, the

carrying amount

and remaining

amortisation

period of any individual intangible asset that is material to the entity’s financial statements.

(c)

for intangible assets acquired by way of a government grant and initially recognised at fair value (see

paragraph 44

(i)

the fair value initially recognised for these assets;

(ii)

their carrying amount; and

(iii)

whether they are measured after recognition under the cost model

[

Refer:

paragraph 74

]

or the revaluation model.

[

Refer:

paragraph 75

]

(d)

the existence and carrying amounts of intangible assets whose title is restricted and the carrying amounts of intangible assets pledged as security for liabilities.

(e)

the amount of contractual commitments for the acquisition of intangible assets.

123

When an entity describes the factor(s) that played a significant role in determining that the

useful life

of an

intangible asset

is indefinite, the entity considers the list of factors in

paragraph 90

Intangible assets measured after recognition using the revaluation model

124

intangible assets

are accounted for at revalued amounts,

[

Refer:

paragraphs 72

and

75–87

]

an entity shall disclose the following:

(a)

by class

[

Refer:

paragraphs 73

and

119

]

of intangible assets:

(i)

the effective date of the revaluation;

(ii)

the

carrying amount

of revalued intangible assets; and

(iii)

the carrying amount that would have been recognised had the revalued class of intangible assets been measured after recognition using the cost model in

paragraph 74

; and

(b)

the amount of the revaluation surplus that relates to intangible assets at the beginning and end of the period, indicating the changes during the period and any restrictions on the distribution of the balance to shareholders.

(c)

[deleted]

125

It may be necessary to aggregate the classes of revalued assets

[

Refer:

paragraphs 73

and

119

]

into larger classes for disclosure purposes. However, classes are not aggregated if this would result in the combination of a class of

intangible assets

that includes amounts measured under both the cost

[

Refer:

paragraph 74

]

and revaluation

[

Refer:

paragraph 75

]

models.

Research and development expenditure

126

An entity shall disclose the aggregate amount of

research

and

development

expenditure recognised as an expense during the period.

127

Research

and

development

expenditure comprises all expenditure that is directly attributable to research or development activities (see

paragraphs 66 and 67

for guidance on the type of expenditure to be included for the purpose of the disclosure requirement in

paragraph 126

Other information

128

An entity is encouraged, but not required, to disclose the following information:

(a)

a description of any fully amortised

intangible asset

that is still in use; and

(b)

a brief description of significant intangible assets controlled by the entity but not recognised as assets because they did not meet the recognition criteria in this Standard or because they were acquired or generated before the version of IAS 38

Intangible Assets

issued in 1998 was effective.

Transitional provisions and effective date

[

Refer:

Basis for Conclusions paragraphs BC90–BC102

]

129

[Deleted]

130

An entity shall apply this Standard:

(a)

to the accounting for

intangible assets

acquired in business combinations for which the agreement date is on or after 31 March 2004; and

(b)

to the accounting for all other intangible assets prospectively from the beginning of the first annual period beginning on or after 31 March 2004. Thus, the entity shall not adjust the

carrying amount

of intangible assets recognised at that date. However, the entity shall, at that date, apply this Standard to reassess the useful lives of such intangible assets. If, as a result of that reassessment, the entity changes its assessment of the

useful life

of an asset, that change shall be accounted for as a change in an accounting estimate in accordance with

IAS 8

[

Refer:

IAS 8 paragraphs 32–40

]

130A

An entity shall apply the amendments in

paragraph 2

for annual periods beginning on or after 1 January 2006. If an entity applies

IFRS 6

for an earlier period, those amendments shall be applied for that earlier period.

130B

IAS 1

Presentation of Financial Statements

(as revised in 2007)

amended the terminology used throughout IFRSs. In addition it amended

paragraphs 85

and

118(e)(iii)

. An entity shall apply those amendments for annual periods beginning on or after 1 January 2009. If an entity applies

IAS 1 (revised 2007)

for an earlier period, the amendments shall be applied for that earlier period.

130C

IFRS 3

(as revised in 2008) amended

paragraphs 12

33–35

and

130

, deleted paragraphs 38 and 129 and added

paragraph 115A

Improvements to IFRSs

issued in April 2009 amended

paragraphs 36

and

. An entity shall apply those amendments prospectively for annual periods beginning on or after 1 July 2009. Therefore, amounts recognised for

intangible assets

and goodwill in prior business combinations shall not be adjusted. If an entity applies

IFRS 3

(revised 2008) for an earlier period, it shall apply the amendments for that earlier period and disclose that fact.

130D

Paragraphs 69

and

were amended and

paragraph 69A

was added by

Improvements to IFRSs

issued in May 2008. An entity shall apply those amendments for annual periods beginning on or after 1 January 2009. Earlier application is permitted. If an entity applies the amendments for an earlier period it shall disclose that fact.

130E

[Deleted]

130F

IFRS 10

and

IFRS 11

Joint Arrangements

, issued in May 2011, amended

paragraph 3(e)

. An entity shall apply that amendment when it applies

IFRS 10

and

IFRS 11

130G

IFRS 13

, issued in May 2011, amended

paragraphs 8

100

and

124

and deleted paragraphs 39–41 and 130E. An entity shall apply those amendments when it applies

IFRS 13

130H

Annual Improvements to IFRSs 2010–2012 Cycle

, issued in December 2013, amended paragraph 80. An entity shall apply that amendment for annual periods beginning on or after 1 July 2014. Earlier application is permitted. If an entity applies that amendment for an earlier period it shall disclose that fact.

130I

An entity shall apply the amendment made by

Annual Improvements to IFRSs 2010–2012 Cycle

to all revaluations recognised in annual periods beginning on or after the date of initial application of that amendment and in the immediately preceding annual period. An entity may also present adjusted comparative information for any earlier periods presented, but it is not required to do so. If an entity presents unadjusted comparative information for any earlier periods, it shall clearly identify the information that has not been adjusted, state that it has been presented on a different basis and explain that basis.

[

Refer:

Basis for Conclusions paragraph BC100A

]

130J

Clarification of Acceptable Methods of Depreciation and Amortisation

(Amendments to IAS 16 and IAS 38), issued in May 2014, amended

paragraphs 92

and

and added

paragraphs 98A–98C

. An entity shall apply those amendments prospectively for annual periods beginning on or after 1 January 2016. Earlier application is permitted. If an entity applies those amendments for an earlier period it shall disclose that fact.

130K

IFRS 15

Revenue from Contracts with Customers

, issued in May 2014, amended

paragraphs 3

114

and

116

. An entity shall apply those amendments when it applies

IFRS 15

130L

IFRS 16

, issued in January 2016, amended paragraphs 3, 6, 113 and 114. An entity shall apply those amendments when it applies IFRS 16.

130M

IFRS 17, issued in May 2017, amended paragraph 3.

Amendments to IFRS 17

, issued in June 2020, further amended paragraph 3. An entity shall apply that amendment when it applies IFRS 17.

130N

IFRS 18

Presentation and Disclosure in Financial Statements

issued in April 2024 amended

paragraph 102

. An entity shall apply those amendments when it applies

IFRS 18

Exchanges of similar assets

131

The requirement in

paragraphs 129 and 130(b)

to apply this Standard prospectively means that if an exchange of assets

[

Refer:

paragraphs 45–47

]

was measured before the effective date of this Standard on the basis of the

carrying amount

of the asset given up, the entity does not restate the carrying amount of the asset acquired to reflect its fair value at the acquisition date.

Early application

[

Refer:

Basis for Conclusions paragraphs BC101 and BC102

]

132

Entities to which

paragraph 130

applies are encouraged to apply the requirements of this Standard before the effective dates specified in

paragraph 130

. However, if an entity applies this Standard before those effective dates, it also shall apply

IFRS 3

and

IAS 36

(as revised in 2004) at the same time.

Withdrawal of IAS 38 (issued 1998)

133

This Standard supersedes IAS 38

Intangible Assets

(issued in 1998).

Board Approvals

Approval by the Board of IAS 38 issued in March 2004

International Accounting Standard 38

Intangible Assets

(as revised in 2004) was approved for issue by thirteen of the fourteen members of the International Accounting Standards Board. Professor Whittington dissented. His dissenting opinion is set out after the Basis for Conclusions.

Sir David Tweedie

Chairman

Thomas E Jones

Vice-Chairman

Mary E Barth

Hans-Georg Bruns

Anthony T Cope

Robert P Garnett

Gilbert Gélard

James J Leisenring

Warren J McGregor

Patricia L O’Malley

Harry K Schmid

John T Smith

Geoffrey Whittington

Tatsumi Yamada

Approval by the Board of

Clarification of Acceptable Methods of Depreciation and Amortisation

(Amendments to IAS 16 and IAS 38) issued in May 2014

Clarification of Acceptable Methods of Depreciation and Amortisation

was approved for issue by fifteen of the sixteen members of the International Accounting Standards Board. Ms Tokar dissented. Her dissenting opinion is set out after the Basis for Conclusions.

Hans Hoogervorst

Chairman

Ian Mackintosh

Vice-Chairman

Stephen Cooper

Philippe Danjou

Martin Edelmann

Jan Engström

Patrick Finnegan

Amaro Luiz de Oliveira Gomes

Gary Kabureck

Suzanne Lloyd

Patricia McConnell

Takatsugu Ochi

Darrel Scott

Chungwoo Suh

Mary Tokar

Wei-Guo Zhang

Footnotes

The definition of an asset in this Standard was not revised following the revision of the definition of an asset in the

Conceptual Framework for Financial Reporting

issued in 2018.

(back)

In April 2024 the IASB issued

IFRS 18

Presentation and Disclosure in Financial Statements

and carried over these requirements in

IAS 1

Presentation of Financial Statements

IFRS 18

(back)