IAS 38 Intangible Assets — Complete Guide

What is IAS 38?

IAS 38 Intangible Assets governs the recognition, measurement, and disclosure of intangible assets — identifiable non-monetary assets without physical substance. It is one of the most tested standards in ACCA Financial Reporting (FR) and Strategic Business Reporting (SBR), particularly because it involves significant judgement and has important implications for reported earnings and asset values.

Definition and Recognition Criteria

An intangible asset must meet all three criteria:

1. Identifiability: Separable (can be sold, transferred, licensed) OR arises from contractual/legal rights
2. Control: Entity has power to obtain future economic benefits and restrict access by others
3. Future economic benefits: Probable inflow of economic benefits attributable to the asset

Additionally, for recognition in financial statements: the cost of the asset can be measured reliably.

Research vs Development Costs

IAS 38's treatment of R&D is one of its most important — and most examined — aspects:

The PIRATE Criteria for Development Expenditure Capitalisation

• Probable future economic benefits
• Intention to complete the asset
• Resources available to complete
• Ability to use or sell the asset
• Technical feasibility of completing
• Expenditure can be reliably measured

ALL six criteria must be met for development expenditure to be capitalised.

Internally Generated Intangibles

IAS 38 prohibits recognition of internally generated goodwill, brands, mastheads, publishing titles, customer lists, and similar items — because the cost of these cannot be reliably distinguished from the cost of developing the business as a whole.

Measurement After Recognition

• Cost model: Intangible at cost less accumulated amortisation (if finite life) and impairment losses
• Revaluation model: Intangible at fair value — only permitted if an active market exists for the intangible (rare)

Finite vs Indefinite Useful Life

• Finite useful life: Amortised over useful life; reviewed for impairment when indicator exists
• Indefinite useful life: NOT amortised; tested for impairment annually (and whenever indicator exists) per IAS 36

Goodwill (acquired in a business combination) is treated as having an indefinite useful life and tested annually for impairment under IAS 36.

Exam Tips for IAS 38

• PIRATE mnemonic is essential — apply all six criteria in any development cost question
• Remember: research is always expensed; development may be capitalised if PIRATE criteria met
• Internally generated goodwill, brands, customer lists = never recognised
• Impairment of intangibles: apply IAS 36 — recoverable amount is higher of value in use and fair value less costs of disposal

Study ACCA with Learnsignal — our FR and SBR courses cover IAS 38 with exam-focused practice questions.

Further Reading

• IFRS 15 Revenue from Contracts with Customers — Complete Guide
• IFRS 16 Leases — Complete Guide for Finance Students
• IFRS 9 Financial Instruments — Complete Guide
• IAS 36 Impairment of Assets — Complete Guide

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