IAS 38 : INTANGIBLES

Separable : to be separable it must be

1. Capable of being separated or divided from the entity and sold ,
1. transferred , licensed, rent or exchanged either individually or
Identifiable together with a related contract, asset or liability
2. Regardless of whether the entity intends to do so or not.
OR
Arises from Legal rights : Identifiability can also be proved
through the existence of :
- Contractual or
- Other legal rights.
These rights must be considered even if they are not transferable
or separable from the entity or from other rights and obligations.

2. Non –monetary
Definition
(other than cash &
bank)
3. Asset
1. A resource controlled by the entity.
We control the asset if we can :
a) Restrict access to the FEB AND
4. Without b) Have the power to obtain the
Physical FEB.
Existence 2. as a result of past event.
3. from which an inflow of FEB are
expected.

1. The expected inflow of Future

Economic Benefits are probable.

AND

Recognition Criteria 2. The cost must be reliably

measured.

Cost = Purchase price + Directly

attributable costs.
 Accounting Treatment

ACQUIRE Internally In process R&D

(Def & criteria Generated purchased
Same as above)

INTERNALLY GENERATED
ITEMS

Goodwill / Other than

Brands Goodwill / Brand

Def + Criteria = Not Def + Criteria Def + Criteria

met (Cost can’t be = not met = Met
reliably measured)

Expense Out Expense Out Development Research

6 conditions met
NO Expense Out
YES

Capitalize (Directly attributable cost)

Expense Out
1. The technical feasibility of completing the asset.
2. The intention to complete the asset and to either use/sell it.
3. The ability to use/sell it NOTE :
4. How the asset will generate FEB (demonstrating market to 1. Costs that were expensed out may never be capitalized
sell/usefulness. subsequently.
5. The adequate availability of necessary resources to complete
2. As soon as the development of the asset is complete and
the development and to sell/use the asset.
the developed asset is available to use capitalization of the
6. The ability to reliably measure the cost of the development
cost of the asset must cease and amortization begins.
of the asset.
 Not to be included in Directly attributable cost

1. Selling, admin and other general overheads unless these are directly attributable to preparing the asset for use
2. Costs that are due to identified inefficiencies occurring before the asset reaches its planned performance level.
3. Costs that represent initial operating losses incurred because the asset has not reached its planned performance
level.
4. Costs of training staff how to operate the asset.

In Process R & D Purchased

When it :
1. Meets the
definition of an asset.
Initially 2. Is identifiable . Subsequently

Amount to be
capitalized.
Research Development.

Measure at FV
(Both Research &
development) 6 conditions

Expense out

XXX Ltd
Not met Met
Notes to the Financial Statement
Expense out Capitalize
For the year ended xxx

Opening Cost xxx

Accumulated amortization/Impairment (xxx)
Net carrying amount opening xxx

Add: Additions xxx

Less: Amortization/Impairment/Disposal (xxx)
Net Carrying amount closing xxx

Costs xxx
Accumulated amortization (xxx)
Net carrying amount closing xxx
 CONCEPTS RELATED TO AMORTIZATION OF INTANGIBLES
You should estimate following three variables when calculating amortization
1. Residual Value
2. Period of Amortization and
3. Method of amortization

AMOUNT TO BE AMORTIZED IS :
Cost – Residual Value

It should always be zero unless:

1. 3rd party has committed to purchase the asset at the end of its useful life
2. There is an active market for that asset and it is possible to measure the RV using such
market and it is probable that the market will still exist at the end of its useful life.

Amortization

BEGINS Ceases Period

When an asset As earlier of : Shorter of :
becomes 1. De-recognition of 1. Economic Life
available for use. the asset. 2. Legal life (unless
2. Re-classification of renewable at
the asset to the insignificant cost).
classification of ‘Non-
current asset held for
sale’.