If the pattern cannot be determined reliably, amortise by the straight line method. Please read, International Financial Reporting Standards, IAS 1 — Presentation of Financial Statements, IAS 8 — Accounting Policies, Changes in Accounting Estimates and Errors, IAS 10 — Events After the Reporting Period, IAS 15 — Information Reflecting the Effects of Changing Prices (Withdrawn), IAS 19 — Employee Benefits (1998) (superseded), IAS 20 — Accounting for Government Grants and Disclosure of Government Assistance, IAS 21 — The Effects of Changes in Foreign Exchange Rates, IAS 22 — Business Combinations (Superseded), IAS 26 — Accounting and Reporting by Retirement Benefit Plans, IAS 27 — Separate Financial Statements (2011), IAS 27 — Consolidated and Separate Financial Statements (2008), IAS 28 — Investments in Associates and Joint Ventures (2011), IAS 28 — Investments in Associates (2003), IAS 29 — Financial Reporting in Hyperinflationary Economies, IAS 30 — Disclosures in the Financial Statements of Banks and Similar Financial Institutions, IAS 32 — Financial Instruments: Presentation, IAS 35 — Discontinuing Operations (Superseded), IAS 37 — Provisions, Contingent Liabilities and Contingent Assets, IAS 39 — Financial Instruments: Recognition and Measurement, Research project — Rate-regulated activities, Rate-regulated activities — Comprehensive project, Educational material on applying IFRSs to climate-related matters, EFRAG publishes discussion paper on crypto-assets (liabilities), WICI consults on communicating value creation from intangibles, We comment on two IFRS Interpretations Committee tentative agenda decisions, EFRAG issues academic report on intangibles, European Union formally adopts updated references to the Conceptual Framework, Deloitte comment letter on tentative agenda decision on IAS 38 — Presentation of player transfer payments, EFRAG endorsement status report 9 December 2019, Deloitte comment letter on tentative agenda decision on IAS 38 — Customer’s right to access the supplier’s software hosted on the cloud, The capitalisation debate: R&D expenditure, disclosure content and quantity, and stakeholder views, IFRIC 12 — Service Concession Arrangements, IFRIC 20 — Stripping Costs in the Production Phase of a Surface Mine, SIC-6 — Costs of Modifying Existing Software, IAS 16 — Stripping costs in the production phase of a mine, International Valuation Standards Council (IVSC), Operative for annual financial statements covering periods beginning on or after 1 January 1995, E50 was modified and re-exposed as Exposure Draft E59, Operative for annual financial statements covering periods beginning on or after 1 July 1998, Applies to intangible assets acquired in business combinations occurring on or after 31 March 2004, or otherwise to other intangible assets for annual periods beginning on or after 31 March 2004, Effective for annual periods beginning on or after 1 January 2009, Effective for annual periods beginning on or after 1 July 2009, Effective for annual periods beginning on or after 1 July 2014, Effective for annual periods beginning on or after 1 January 2016, expenditure on the development and extraction of minerals, oil, natural gas, and similar resources, intangible assets arising from insurance contracts issued by insurance companies, intangible assets covered by another IFRS, such as intangibles held for sale (, control (power to obtain benefits from the asset), future economic benefits (such as revenues or reduced future costs), is separable (capable of being separated and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract) or. However, in the recent past, the implementation of IAS 38 in respect of research and development expenditure has been under some sort of controversy. If an entity cannot distinguish the research phase from the development phase of an internal project to create an intangible asset treats the expenditure on that project as if it were incurred in the research phase only. A research and development project acquired in a business combination is recognised as an asset at cost, even if a component is research. The Standard requires an entity to recognise an intangible asset if, and only if, certain criteria are met. [IAS 38.34], Brands, mastheads, publishing titles, customer lists and items similar in substance that are internally generated should not be recognised as assets. [IAS 38.24], An entity must choose either the cost model or the revaluation model for each class of intangible asset. This Standard deals with the accounting treatment of Intangible Assets, which are not covered by other accounting standards including the guidance for the main issues related to the recognition & measurement of intangible assets, including relevant disclosure requirements. It replaced IAS 9 Research and Development Costs (issued 1993, replacing an earlier version issued in July 1978). After initial recognition intangible assets should be carried at cost less accumulated amortisation and impairment losses. Under IAS 38, an intangible asset must demonstrate all of the following criteria: (use pirate as a memory jogger) P robable future economic benefits. A research and development project acquired in a business combination is recognised as an asset at cost, even if a component is research. Research costs IAS 38 states that all expenditure incurred at the research stage should be written off to the income statement as an expense when incurred, and will never be capitalised as an intangible asset. 2. [IAS 38.70], Intangible assets are initially measured at cost. [IAS 38.68]. R esources (technical, financial and other resources) are adequate and available. [IAS 38.35] An expenditure (included in the cost of acquisition) on an intangible item that does not meet both the definition of and recognition criteria for an intangible asset should form part of the amount attributed to the goodwill recognised at the acquisition date. [IAS 38.35] An expenditure (included in the cost of acquisition) on an intangible item that does not meet both the definition of and recognition criteria for an intangible asset should form part of the amount attributed to the goodwill recognised at the acquisition date. [IAS 38.34] IAS 38 Intangible Assets outlines the accounting requirements for intangible assets, which are non-monetary assets which are without physical substance and identifiable (either being separable or arising from contractual or other legal rights). [IAS 38.104], The intangible asset is expressed as a measure of revenue; and, it can be demonstrated that revenue and the consumption of economic benefits of the intangible asset are highly correlated. Intangible asset: an identifiable non-monetary asset without physical substance. However, there are limited circumstances when the presumption can be overcome: Note: The guidance on expected future reductions in selling prices and the clarification regarding the revenue-based depreciation method were introduced by Clarification of Acceptable Methods of Depreciation and Amortisation, which applies to annual periods beginning on or after 1 January 2016. Intangible assets meeting the relevant recognition criteria are initially measured at cost, subsequently measured at cost or using the revaluation model, and amortised on a systematic basis over their useful lives (unless the asset has an indefinite useful life, in which case it is not amortised). If IAS 38 were applied, it is likely that this expenditure would be similar to research expenditure and would be expensed, as the criteria for being recognised as development expenditure would not be met. [IAS 38.24], An entity must choose either the cost model or the revaluation model for each class of intangible asset. If an intangible item does not meet both the definition of and the criteria for recognition as an intangible asset, IAS 38 requires the expenditure on this item to be recognised as an expense when it is incurred. Reinstatement. The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. 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 estimate. The asset should also be assessed for impairment in accordance with IAS 36. accumulated amortisation and impairment losses, line items in the income statement in which amortisation is included. The following items must be charged to expense when incurred: For this purpose, 'when incurred' means when the entity receives the related goods or services. The asset should also be assessed for impairment in accordance with IAS 36. Internally generated intangible asset Research and Development Subsequent expenditure on that project is accounted for as any other research and development cost (expensed except to the extent that the expenditure satisfies the criteria in IAS 38 for recognising such expenditure as an intangible asset). internally generated goodwill [IAS 38.48], start-up, pre-opening, and pre-operating costs [IAS 38.69], advertising and promotional cost, including mail order catalogues [IAS 38.69]. This paper analyzes the consequences of the capitalization of development expenditures under IAS 38 on analysts’ earnings forecasts. Once entered, they are only Intangible asset: an identifiable non-monetary asset without physical substance. If the entity has made a prepayment for the above items, that prepayment is recognised as an asset until the entity receives the related goods or services. All such expenditure should be treated as an expense in the Income Statement and its amount disclosed in … [IAS 38.33], If recognition criteria not met. [IAS 38.107], Its useful life should be reviewed each reporting period to determine whether events and circumstances continue to support an indefinite useful life assessment for that asset. [IAS 38.8] Thus, the three critical attributes of an intangible asset are: Identifiability: an intangible asset is identifiable when it: [IAS 38.12], Recognition criteria. If it has a finite useful life, it is amortised over that life. search for application of knowledge and material. Currently IFRS 6 has specific requirements relating to impairment that differ from the requirements in IAS … Intangible assets may be carried at a revalued amount (based on fair value) less any subsequent amortisation and impairment losses only if fair value can be determined by reference to an active market. Intangible assets may be carried at a revalued amount (based on fair value) less any subsequent amortisation and impairment losses only if fair value can be determined by reference to an active market. IAS 38 Intangible Assets outlines the accounting requirements for intangible assets, which are non-monetary assets which are without physical substance and identifiable (either being separable or arising from contractual or other legal rights). There is a presumption that the fair value (and therefore the cost) of an intangible asset acquired in a business combination can be measured reliably. Amortisation: over useful life, based on pattern of benefits (straight-line is the default). Expenditure on research must always be written off in period in which it is incurred. I have summarized it in the following table: This site uses cookies to provide you with a more responsive and personalised service. International Accounting Standard 38 is the only accounting standard covering accounting procedures for research and development costs under IFRS. Costs incurred on internally generated intangible assets are incurred at Research Phase and Development stage. [IAS 38.22] The probability recognition criterion is always considered to be satisfied for intangible assets that are acquired separately or in a business combination. internally generated goodwill [IAS 38.48], start-up, pre-opening, and pre-operating costs [IAS 38.69], advertising and promotional cost, including mail order catalogues [IAS 38.69]. IAS 38 was revised in March 2004 and applies to intangible assets acquired in business combinations occurring on or after 31 March 2004, or otherwise to other intangible assets for annual periods beginning on or after 31 March 2004. arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations. we introduce what is intangible assets and their attributes, recognition criteria and measurement methods. IAS 38 and SIC 32 are reproduced in this publication of the International Public Sector Accounting Standards Board (IPSASB) of the International Federation of Accountants (IFAC) with the permission of the International Accounting Standards Committee Foundation (IASCF). IAS 38 requires an entity to recognise an intangible asset, whether purchased or self-created (at cost) if, and only if: [IAS 38.21]. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox. Intangible assets meeting the relevant recognition criteria are initially measured at cost, subsequently measured at cost or using the revaluation model, and amortised on a systematic basis over their useful lives (unless the asset has an indefinite useful life, in which case it is not amortised). [IAS 38.70], Intangible assets are initially measured at cost. [IAS 38.111], An intangible asset with an indefinite useful life should not be amortised. In the research phase of an internal project, an entity cannot demonstrate that an intangible asset exists that will generate probable future economic benefits. hyphenated at the specified hyphenation points. [IAS 38.63], For each class of intangible asset, disclose: [IAS 38.118 and 38.122]. 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