SARANSH Indian Accounting Standards

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Scope of Ind AS 38
Applicability
Intangible assets other than
included in the list of non-
applicability
Intangible assets- Criteria
Non-Applicablility
Financial assets (Ind AS 32)
Identifiability Control over Existence of future
resources economic benefits

Expenditure on advertising, Recognition and measurement

training, start-up, research and of exploration and evaluation An asset is Control exists when an It includes (any)
development activities assets (Ind AS 106) identifiable entity has the power to
if it obtain the future economic
Rights under licensing Expenditure on the benefits flowing from the Revenue from
agreements for items such as development and extraction underlying resource and to the sale of
motion picture films, video of minerals, oil, natural gas restrict the access of others products or
recordings, plays, manuscripts, and similar non-regenerative to those benefits services
patents and copyrights resources

Other intangible assets used Intangible assets held by an Is separable Arises from The capacity Cost savings
(such as computer software), entity for sale in the ordinary contractual of an entity to
and other expenditure incurred course of business (Ind AS 2) or other legal control stems
(such as start-up costs), in rights from legal Other benefits
extractive industries or by Deferred tax assets (Ind AS 12) rights resulting from
insurers. the use of the
Leases PG
JOUBOHJCMF
BTTFUT
asset by the
entity
(Ind AS 1)
Assets arising from employee
benefits (Ind AS 19) Recognition of Intangible Assets – General
Goodwill acquired in a Principles
business combination (Ind AS
103)
It is probable
Deferred acquisition costs and that the
intangible assets, arising from expected future
an insurer’s contractual rights economic
under insurance contracts (Ind benefits
AS 104) (attributable
Non-current intangible assets to the asset)
classified as held for sale (or will flow to the
included in a disposal group entity
that is classified as held for An intangible
sale) (Ind AS 105) asset shall be
recognised if,
Assets arising from contracts and only if
with customers (Ind AS 115)
Amortisation of the intangible
assets arising from service The cost of
concession arrangements in the asset can
respect of toll roads be measured
reliably

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Resource controlled by entity
Note: Probability of future economic benefits will exist if the entity
expects there to be an inflow of economic benefits, though there is
uncertainty about the timing or the amount of the inflow.

As a result of past event

Asset
Measurement of Intangible Asset
Future economic Intangible assets may be acquired or can be self generated. The below diagram
benefits are expected to reflect the method and mode by which Intangible assets may arise:
flow to the entity

Separate
Acquisition
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Exchange of Business
assets combination
Intangible Assets
Intangible Asset
may arise from

Identifiable Non-monetary Without physical Internally

generated Government
asset substance intangible assets Grant
Internally
generated
goodwill

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SARANSH Indian Accounting Standards

A.Recognition and Measurement for intangible assets acquired D. Exchanges of assets

separately Measurement • One or more intangible assets may be acquired in
Recognition • The probability recognition criterion is always exchange for a non-monetary asset or assets, or a
combination of monetary and non-monetary assets.
for intangible considered to be satisfied for separately acquired • If an entity is able to measure reliably the fair value of
assets intangible assets. either the asset received or the asset given up, then
acquired • The cost of a separately acquired intangible the fair value of the asset given up is used to measure
separately asset can usually be measured reliably. This is cost unless the fair value of the asset received is more
clearly evident. (Refer chart on “Exchange of Assets”
particularly so when the purchase consideration given in Ind AS 16)
is in the form of cash or other monetary assets.
E. Internally generated goodwill
Measurement of Cost for Intangible Assets Recognition • Internally generated goodwill shall not be recognised
Acquired Separately as an asset.
• Internally generated goodwill is not recognised as
an asset because it is not an identifiable resource
Cost of Separately Acquired Intangible Asset controlled by the entity that can be measured reliably
at cost.

Purchase price Directly attributable Cost of preparing the

Internally generated Intangible Asset
including import duties asset for its intended use. (Cost of Employee
and non - refundable Benefits, Professional and Legal Fees Cost
purchase taxes of Testing) Recognition of Internally generated intangible assets

Includes Excludes Research phase Development

phase

Research is original and planned Development is the application

investigation undertaken with the of research findings or other
Costs of Professional Costs of Costs of Costs of Administration prospect of gaining new scientific knowledge to a plan or design for the
employee fees arising testing introducing conducting and other or technical knowledge and production of new or substantially
benefits directly from a new business general understanding improved asset
bringing product or in a new overhead costs.
the asset to service location or
its working with a new
condition class of No intangible asset arising An intangible asset arising from
customer from research phase shall be development phase shall be
recognised recognised if, and only if, an entity
can demonstrate all of the following:
Note:
1. Costs incurred in using or redeploying an intangible asset are not
included in the carrying amount of that asset. The technical feasibility of completing the intangible asset so that it will
2. Incidental operations not necessary to bring an asset to the be available for use or sale
condition necessary for it to be capable of operating in the
manner intended by management, the income and related Its intention to complete the intangible asset and use or sell it.
expenses of incidental operations are recognised immediately in
profit or loss.
Its ability to use or sell the intangible asset
3. 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 How the intangible asset will generate probable future economic benefits
interest expense over the period of credit if not capitalised as per
Ind AS 23.
The availability of adequate technical, financial and other resources to
complete the development and to use or sell the intangible asset
B. Acquisition as part of a business combination
Recognition • The probability recognition criterion is always
Its ability to measure reliably the expenditure attributable to the
criteria for considered to be satisfied for intangible assets acquired intangible asset during its development
intangible assets in business combinations.
acquired as part • The reliable measurement criterion is always considered
of a business to be satisfied for intangible assets acquired in business
Note:
combination combinations.
1. If an entity cannot distinguish the research phase from the
• The acquirer may recognise a group of complementary
development phase of an internal project to create an intangible
intangible assets as a single asset provided the individual
asset, the entity treats the expenditure on that project as if it were
assets have similar useful lives.
incurred in the research phase only.
Measuring fair • If an intangible asset is acquired in a business 2. Internally generated brands, mastheads, publishing titles,
value combination, the cost of that intangible asset is its customer lists and items similar in substance shall not be
fair value at the acquisition date. recognised as intangible assets.
C. Acquisition by way of a government grant 3. The cost of an internally generated intangible asset is the sum
of expenditure incurred from the date when the intangible asset
Recognition If an intangible asset is acquired free of charge, or for
first meets the recognition criteria.
nominal consideration, by way of a government grant, an
4. Standard prohibits reinstatement of expenditure previously
entity recognises both the intangible asset and the grant
recognised as an expense.
initially at fair value as per Ind AS 20.

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SARANSH Indian Accounting Standards

Measurement after Recognition and Revaluation

Refer the charts for ‘Measurement after recognition’, ‘Frequency of revaluation’, ‘Treatment on application of revaluation model’ and
‘Treatment of revaluation gain or loss’ given in Ind AS 16. Same charts hold goods for Ind AS 38 also.

Additional important points to be remembered in case of revaluation of intangible asset

™ If an intangible asset in a class of revalued intangible assets cannot be revalued because there is no active market for this asset,
x 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,
x 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.

Amortisation of an Intangible asset

Recognised in profit
or loss

Annually
If useful life is finite If useful life is indefinite* Test for
impairment
by comparing
its recoverable Whenever
amount with there is an
its carrying indication for
Intangible asset is
Intangible asset is amortised amount impairment
not amortised
based on its useful life**

The useful life shall be reviewed

periodically. The change in the useful
life assessment from indefinite to
finite shall be accounted for as a
Cessation of amortisation change in an accounting estimate as
Commencement of
period per Ind AS 8.
amortisation period

When the asset is

available for use
When the asset is classified as The date that
held for sale (or included in a At the earlier the asset is
disposal group i.e. classified as of the date derecognised
held for sale) as per Ind AS 105

Amortisation of an intangible asset with a finite useful life does not cease when the
intangible asset is no longer used, if the asset has not been fully depreciated or has not
been classified as held for sale (or included in a disposal group that is classified as held
for sale) as per Ind AS 105.

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

**Useful life is equivalent to the length of, or number of production or similar units.

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SARANSH Indian Accounting Standards

Useful Life of an Intangible Asset

Useful life of an Factors considered in determining the useful Expected usage of the asset by the entity
intangible asset life of an intangible asset

Typical product life cycles for the asset and

If intangible asset arises from
contractual or other legal rights
The useful life shall
not exceed the period
of the contractual or
other legal rights
The useful life may be
shorter depending on
the period over which
the entity expects to
use the asset
Yes
public information on estimates of useful
lives of similar assets
If an intangible asset
is a reacquired right
arisen due to a business Technical, technological, commercial or
combination other types of obsolescence
Its useful life is the Stability of the industry in which the asset
remaining contractual operates and changes in the market demand
period of the contract for the products or services output from the
in which the right was asset
granted and shall not
include renewal periods Expected actions by competitors
Level of maintenance expenditure required
Whether the
contractual or Period of control over the asset and legal or
other legal rights similar limits on the use of the asset
can be renewed?

No Dependent on the useful life of other

assets of the entity
Useful life of the
intangible asset shall Useful life of the
include the renewal intangible asset
period(s) if renewal is shall not include the
without significant cost renewal period(s)

Amortisation Method
Factors influencing the useful life
Amortisation Method
Applied consistently
from period to period

The useful life is
Economic factors
the shorter of the
periods determined
by these factors
Straight-line
method
Method used is selected
Legal factors
on the basis of the
Diminishing expected pattern
balance method
of consumption of
the expected future
Units of economic benefits
production method embodied in the asset

Economic factors Legal factors may Commitment

determine the period restrict the period Residual by a third party
over which future over which the entity Value is to purchase at There is an
economic benefits controls access to assumed end of useful active market
will be received by these benefits to be zero life i.e. have
the entity unless there is a guaranteed
residual value or

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SARANSH Indian Accounting Standards

Note: Retirements and Disposals of Intangible

Particular Details Assets
Residual value other than zero It implies that an entity expects to dispose
of the intangible asset before the end of its By sale
economic life
Review of residual value The residual value is reviewed at least at By entering
each financial year-end On
disposal into finance
An intangible asset shall lease
Change in the asset’s residual A change in the asset’s residual value is be derecognised
value accounted for as a change in an accounting
estimate as per Ind AS 8
When
no future By donation
Increase in residual value to In such a situation, the asset’s amortisation Gain or loss = Net disposal economic
an amount equal to or greater charge is zero unless and until its residual proceeds - Carrying benefits
than the asset’s carrying value subsequently decreases to an amount of the asset are
amount amount below the asset’s carrying amount expected
Review of amortisation period Reviewed at least at each financial year-
from its
and amortisation method end Recognised in profit or use or
loss when the asset is disposal
Change in expected useful life Amortisation period shall be changed derecognised
Change in the expected pattern Amortisation method shall be changed to
of consumption of the future reflect the changed pattern
economic benefits Gains shall not be classified
as revenue
Accounting for changes in Such changes shall be accounted for
amortisation period/method as changes in accounting estimates in
accordance with Ind AS 8 For disclosure requirements of Ind AS 38 refer the study
material.

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