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 Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance. [Refer:IAS 8 paragraphs 10–12]
1 | 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. |
2 | This Standard shall be applied in accounting for intangible assets,E1 except:
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| E1 | [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’:
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:
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:
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 of IAS 1 Presentation of Financial Statements). In particular, the Committee noted the following disclosure requirements in the context of holdings of cryptocurrencies:
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3 | 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:
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4 | 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. |
5 | This Standard applies to, among other things, expenditure on advertising, training, start‑up, research and development activities.E2 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. |
| E2 | [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:
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.] |
6 | 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)]. |
7 | 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. |
8 | 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. An asset is a resource:
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.) An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount. An intangible asset is an identifiable [Refer:paragraphs 11 and 12] non‑monetary asset [Refer:paragraphs 13–17] without physical substance.E3 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:
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| E3 | [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.] |
9 | 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. |
10 | 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). |
11 | 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. |
12 | An asset is identifiable if it either:
[Refer:IFRS 3 paragraphs B32–B34]
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13 | 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.E4, 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. |
| E4 | [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:
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.] |
| E5 | [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:
In analysing the request, the Committee considered:
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.]] |
14 | 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. |
15 | 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. |
16 | 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. |
17 | 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. |
18 | The recognition of an item as an intangible asset requires an entity to demonstrate that the item meets:
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. |
19 | 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. |
20 | 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. |
21 | An intangible asset shall be recognised if, and only if:
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| E6 | [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.] |
22 | 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. |
23 | 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. |
24 | An intangible asset shall be measured initially at cost. |
25 | 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. |
26 | 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. |
27 | The cost of a separately acquired intangible asset comprises:
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| E7 | [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.] |
28 | Examples of directly attributable costs are:
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29 | Examples of expenditures that are not part of the cost of an intangible asset are:
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30 | 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:
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31 | 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. |
32 | 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. |
33 | 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, 22 and 87] 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. |
34 | 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:
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35 | 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. |
36 | An 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. |
37 | 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] |
42 | Research or development expenditure that:
shall be accounted for in accordance with paragraphs 54–62. |
43 | Applying the requirements in paragraphs 54–62 means that subsequent expenditure on an in‑process research or development project acquired separately or in a business combination and recognised as an intangible asset is:
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44 | 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. |
45 | 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. |
46 | 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:
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. |
47 | 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. |
48 | Internally generated goodwill shall not be recognised as an asset. |
49 | 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. |
50 | 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 of intangible assets controlled by the entity. |
51 | It is sometimes difficult to assess whether an internally generated intangible asset qualifies for recognition because of problems in:
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. |
52 | To assess whether an internally generated intangible asset meets the criteria for recognition, an entity classifies the generation of the asset into:
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. |
53 | 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. |
54 | No 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. |
55 | 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. |
56 | Examples of research activities are:
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57 | An 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:
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58 | 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]. |
59 | Examples of development activities are:
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60 | 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. |
61 | 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. |
62 | 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. |
63 | Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall not be recognised as intangible assets. |
64 | 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. |
65 | 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, 22 and 57. Paragraph 71 prohibits reinstatement of expenditure previously recognised as an expense. |
66 | 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:
IAS 23 specifies criteria for the recognition of interest as an element of the cost of an internally generated intangible asset. |
67 | The following are not components of the cost of an internally generated intangible asset:
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68 | Expenditure on an intangible item shall be recognised as an expense when it is incurred unless:
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69 | 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:
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| E8 | [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.E9 |
| E9 | [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:
In analysing the request, the Committee considered:
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. 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:
Paragraphs 117–124 of IAS 1 Presentation of Financial Statements 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. 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.] |
70 | 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. |
71 | 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. |
72 | 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. |
73 | 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. |
74 | After initial recognition, an intangible asset shall be carried at its cost less any accumulated amortisation and any accumulated impairment losses. |
75 | 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. |
76 | The revaluation model does not allow:
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77 | 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). |
78 | 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. |
79 | 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. |
80 | 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:
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. |
81 | 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. |
82 | 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. |
83 | 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. |
84 | 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. |
85 | 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.
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86 | 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. |
87 | 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. |
88 | 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. |
89 | 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. |
90 | Many factors are considered in determining the useful life of an intangible asset, including:
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91 | 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. |
92 | 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] |
93 | 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. |
94 | 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. |
95 | 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. |
96 | 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:
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. |
97 | 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.E10 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. |
| E10 | [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 of IAS 1 Presentation 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.] |
98 | 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:
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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)]
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99 | 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). |
100 | The residual value of an intangible asset with a finite useful life shall be assumed to be zero unless:
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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 Accounting Policies, Changes in Accounting Estimates and Errors. [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. |
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. |
107 | An 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
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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. |
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] an impairment loss. |
112 | An intangible asset shall be derecognised:
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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)].E11 |
| E11 | [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:
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] |
118 | An entity shall disclose the following for each class [Refer:paragraph 119] of intangible assets, distinguishing between internally generated intangible assets and other intangible assets:
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119 | A class [Refer:paragraph 73] of intangible assets is a grouping of assets of a similar nature and use in an entity’s operations. Examples of separate classes may include:
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.
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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:
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122 | An entity shall also disclose:
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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. |
124 | If intangible assets are accounted for at revalued amounts, [Refer:paragraphs 72, 73 and 75–87] an entity shall disclose the following:
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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. |
126 | An entity shall disclose the aggregate amount of research and development expenditure recognised as an expense during the period.
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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). |
128 | An entity is encouraged, but not required, to disclose the following information:
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129 | [Deleted] |
130 | An entity shall apply this Standard:
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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, 86 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, 68, 69, 94 and 130, deleted paragraphs 38 and 129 and added paragraph 115A. Improvements to IFRSs issued in April 2009 amended paragraphs 36 and 37. 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, 70 and 98 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 |
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]
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130J | Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38), issued in May 2014, amended paragraphs 92 and 98 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. |
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. |
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. |
133 | This Standard supersedes IAS 38 Intangible Assets (issued in 1998). |
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 |
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 |
| 1 | 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) |