Ind AS 38, Intangible Assets | Recognition and Measurement, useful life

Ind AS 38, Intangible Assets: The objective of Ind AS 38 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. Intangible Asset is as an identifiable non-monetary asset without physical substance.

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Recognition and Measurement

An intangible asset should be recognised in the financial statements as an intangible asset if it meets the definition of intangible asset and it meets both the recognition criteria mentioned below.

An intangible asset should be recognised if, and only if:

  • it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and
  • the cost of the asset can be measured reliably. An intangible asset should be measured initially at

An entity should assess the probability of expected future economic benefits 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.

Separate Acquisition

The cost of a separately acquired intangible asset would comprise:

  • its purchase price, including import duties and non-refundable  purchase taxes, after deducting trade discounts and rebates; and
  • any directly attributable cost of preparing the asset for  its  intended use.

Acquisition as Part of a Business Combination

In accordance with Ind AS 103, 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. If an asset acquired in a business combination is separable or arises from contractual or other legal rights, sufficient information would exist to measure reliably the fair value  of  the asset.

In accordance with this Standard and Ind AS 103, an acquirer should  recognise at the acquisition date, separately from goodwill, an  intangible  asset of the acquiree, if it meets the definition and recognition criteria for an intangible asset 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.

Internally Generated Intangible Assets

Internally generated goodwill shall not be recognised as an asset.

No intangible asset arising from research should be recognised. Expenditure on research (or on the research phase of an internal project) should be recognised as an expense when it is incurred.

An intangible asset arising from development shall be  recognised if, and only if, an entity can demonstrate all of the following:

  • the technical feasibility of completing the intangible asset so that it will be available for use or
  • its intention to complete the intangible asset and use or sell (c) its ability to use or sell the intangible asset.
  • how the intangible asset will generate probable future economic benefits.
  • the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible
  • its ability to measure reliably the expenditure attributable to the intangible asset during its

Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance should not be recognised as intangible assets.

The cost of an internally generated intangible asset is the sum of expenditure incurred from the date when the intangible asset first meets the recognition criteria and the condition relating to development phase. Ind AS 38 prohibits reinstatement of expenditure previously recognised as an expense.

Recognition of an Expense

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

  • it forms part of the cost of an intangible asset that meets the  recognition criteria; or the item is acquired in a business combination and cannot be recognised as an intangible asset. If this is the  case, it  forms part  of  the amount recognised as goodwill at the acquisition date (see Ind AS 103).

Measurement after recognition

An entity should choose either the cost model or the revaluation model as its accounting policy. If an intangible asset is accounted  for  using  the revaluation model, all the other assets in its class should also be accounted  for using the same model, unless there is no active market for those assets.

Cost Model- After initial recognition, an intangible asset  should  be  carried at its cost less any accumulated amortisation and any  accumulated  impairment losses.

Revaluation Model- After initial recognition, an intangible asset shall be carried at a revalued amount, being its fair value at the  date  of  the  revaluation less any subsequent accumulated amortisation and any subsequent accumulated impairment losses. For the purpose of revaluations under this Standard, fair value shall be measured by reference to an active market. Revaluations shall be made with such regularity that at the end of the reporting period the carrying amount of the asset does not differ materially  from its fair value

The revaluation model is applied after an asset has been  initially recognised  at cost. However, if only part of the cost of an intangible asset is  reco gnised  as an asset because the asset did  not meet  the criteria for recognition until part of the way through the process, the revaluation model may be applied to the whole of that asset.

Treatment of Revaluation Gains and Losses

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

If an intangible asset’s carrying amount is decreased as a result of a revaluation, the decrease should be  recognised in profit or  loss. However,  the decrease should be recognised in other comprehensive income to the extent of any credit balance in the revaluation surplus in respect of that asset.

Useful Life

Useful life is:

  • the period over which an asset is expected to be  available for use by  an entity; or
  • the number of production or similar units expected to be obtained from the asset by an

The accounting for an intangible asset is based on its useful  life.  An  intangible asset with a finite useful life is amortised, and an intangible asset with an indefinite useful life is not.

Many factors are considered in determining the useful life of an intangible asset.

Review of Useful Life Assessment

The useful life of an intangible asset that is not being amortised should 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  should be accounted for as a change in an accounting  estima te  in accordance with Ind AS 8.


An intangible asset shall be derecognised:

  • a) on disposal; or
  • b) when no future economic benefits are expected from its use or disposal.

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 Ind AS 116 requires otherwise on a sale and leaseback). Gains shall not be classified as revenue.

The disposal of an intangible asset may occur in a variety of ways (e.g. by sale, by entering into a 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 Ind AS 115, Revenue from Contracts with Customers. Ind AS 116 applies to disposal by a sale and leaseback

Appendix A of Ind AS 38 provides guidance on whether the web site is an internally generated intangible asset that is subject to the requirements of Ind AS 38; and the appropriate accounting treatment of such expenditure. Th e Appendix prescribes that an entity’s own web site that arises from development and is for internal or external access is an internally generated intangible asset that is subject to the requirements of Ind AS 38. Any internal expenditure on the development and operation of an entity’s own web site shall be accounted for in accordance with Ind AS 38. The nature of each activity for which expenditure is incurred (eg training employees and maintaining the web site) and the web site’s stage of development or post- development shall be evaluated to determine the appropriate accounting treatment. A web site that is recognised as an intangible asset under this Appendix shall be measured after initial recognition by applying the requirements of paragraphs 72-87 of Ind AS 38. The best estimate of a web site’s useful life should be short.

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