Consequences of combining IAS 9 with IAS 38
BCZ36 The requirements in IAS 38 and IAS 9 differ in the following main respects:
(a) IAS 9 limited the amount of expenditure that could initially be recognised for an asset arising from development expenditure (ie the amount that formed the cost of such an asset) to the amount that was probable of being recovered from the asset. Instead, IAS 38 requires that:
(i) all expenditure incurred from when the recognition criteria are met until the asset is available for use should be accumulated to form the cost of the asset; and
(ii) an enterprise should test for impairment, at least annually, an intangible asset that is not yet available for use. If the cost recognised for the asset exceeds its recoverable amount, an enterprise recognises an impairment loss accordingly. This impairment loss should be reversed if the conditions for reversals of impairment losses under IAS 36 Impairment of Assets are met.
(b) IAS 38 permits an intangible asset to be measured after recognition at a revalued amount less subsequent amortisation and subsequent impairment losses. IAS 9 did not permit this treatment. However, it is highly unlikely that an active market (the condition required to revalue intangible assets) will exist for an asset that arises from development expenditure.
(c) IAS 38 requires consideration of residual values in determining the depreciable amount of an intangible asset. IAS 9 prohibited the consideration of residual values. However, IAS 38 sets criteria that make it highly unlikely that an asset that arises from development expenditure would have a residual value above zero.

BCZ34 A large majority of commentators on E60 supported including certain aspects of IAS 9 with the proposed Standard on intangible assets and the withdrawal of IAS 9. A minority of commentators on E60 supported maintaining two separate Standards. This minority supported the view that internally generated intangible assets should be dealt with on a case-by-case basis with separate requirements for different types of internally generated intangible assets. These commentators argued that E60's proposed recognition criteria were too general to be effective in practice for all internally generated intangible assets.
BCZ35 IASC rejected a proposal to develop separate standards (or detailed requirements within one standard) for specific types of internally generated intangible assets because, as explained above, IASC believed that the same recognition criteria should apply to all types of internally generated intangible assets.

BCZ32 From 1989, the majority view at IASC and from commentators was that there should be only one treatment that would require an internally generated intangible asset-whether arising from development expenditure or other expenditure-to be recognised as an asset whenever certain recognition criteria are met. Several minority views were strongly opposed to this treatment but there was no clear consensus on any other single treatment.
Combination of IAS 9 with the Standard on intangible assets
BCZ33 The reasons for not retaining IAS 9 as a separate Standard were that:
(a) IASC believed that an identifiable asset that results from research and development activities is an intangible asset because knowledge is the primary outcome of these activities. Therefore, IASC supported treating expenditure on research and development activities similarly to expenditure on activities intended to create any other internally generated intangible assets.
(b) some commentators on E50, which proposed to exclude research and development expenditures from its scope,
(i) argued that it was sometimes difficult to identify whether IAS 9 or the proposed Standard on intangible assets should apply, and
(ii) perceived differences in accounting treatments between IAS 9 and E50's proposals, whereas this was not IASC's intent.

Background on the requirements for internally generated intangible assets
BCZ30 Before IAS 38 was issued in 1998, some internally generated intangible assets (those that arose from development expenditure) were dealt with under IAS 9 Research and Development Costs. The development of, and revisions to, IAS 9 had always been controversial.
BCZ31 Proposed and approved requirements for the recognition of an asset arising from development expenditure and other internally generated intangible assets had been the following:
(a) in 1978, IASC approved IAS 9 Accounting for Research and Development Activities. It required expenditure on research and development to be recognised as an expense when incurred, except that an enterprise had the option to recognise an asset arising from development expenditure whenever certain criteria were met.
(b) in 1989, Exposure Draft E32 Comparability of Financial Statements proposed retaining IAS 9's option to recognise an asset arising from development expenditure if certain criteria were met and identifying:
(i) as a preferred treatment, recognising all expenditure on research and development as an expense when incurred; and
(ii) as an allowed alternative treatment, recognising an asset arising from development expenditure whenever certain criteria were met.
The majority of commentators on E32 did not support maintaining an option or the proposed preferred treatment.
(c) in 1991, Exposure Draft E37 Research and Development Costs proposed requiring the recognition of an asset arising from development expenditure whenever certain criteria were met. In 1993, IASC approved IAS 9 Research and Development Costs based on E37.
(d) in 1995, consistently with IAS 9, Exposure Draft E50 Intangible Assets proposed requiring internally generated intangible assets-other than those arising from development expenditure, which would still have been covered by IAS 9-to be recognised as assets whenever certain criteria were met.
(e) in 1997, Exposure Draft E60 Intangible Assets proposed:
(i) retaining E50's proposals for the recognition of internally generated intangible assets; but
(ii) extending the scope of the Standard on intangible assets to deal with all internally generated intangible assets- including those arising from development expenditure.
(f) in 1998, IASC approved:
(i) IAS 38 Intangible Assets based on E60, with a few minor changes; and
(ii) the withdrawal of IAS 9.

BC28 The Board also concluded that when an intangible asset is separately acquired in exchange for cash or other monetary assets, sufficient information should exist to measure the cost of that asset reliably.
However, this might not be the case when the purchase consideration comprises non-monetary assets. Therefore, the Board decided to carry forward from the previous version of IAS 38 guidance clarifying that the cost of a separately acquired intangible asset can usually be measured reliably, particularly when the purchase consideration is cash or other monetary assets.
Internally generated intangible assets (paragraphs 51-67)
BCZ29 The controversy relating to internally generated intangible assets surrounds whether there should be:
(a) a requirement to recognise internally generated intangible assets in the balance sheet whenever certain criteria are met;
(b) a requirement to recognise expenditure on all internally generated intangible assets as an expense;
(c) a requirement to recognise expenditure on all internally generated intangible assets as an expense, with certain specified exceptions; or
(d) an option to choose between the treatments described in (a) and (b) above.

Separate acquisition
(paragraphs 25 and 26)
BC26 Having decided to include paragraphs 33-38 in IAS 38, the Board also decided that it needed to consider the role of the probability and reliability of measurement recognition criteria for separately acquired intangible assets.
BC27 Consistently with its conclusion about the role of probability in the recognition of intangible assets acquired in business combinations, the Board concluded that the probability recognition criterion is always considered to be satisfied for separately acquired intangible assets. This is because the price an entity pays to acquire separately an intangible asset normally reflects expectations about the probability that the expected future economic benefits associated with the intangible asset will flow to the entity. In other words, the effect of probability is reflected in the cost of the intangible asset.

BC25 Some respondents and field visit participants suggested that it might also not be possible to measure reliably the fair value of an intangible asset when it is separable, but only together with a related contract, asset or liability (ie it is not individually separable), there is no history of exchange transactions for the same or similar assets on a stand-alone basis, and, because the related items produce jointly the same cash flows, the fair value of each could be estimated only by arbitrarily allocating those cash flows between the two items. The Board disagreed that such circumstances provide a basis for subsuming the value of the intangible asset within the carrying amount of goodwill. Although some intangible assets are so closely related to other identifiable assets or liabilities that they are usually sold as a package, it would still be possible to measure reliably the fair value of that package. Therefore, the Board decided to include the following clarifications in paragraphs 36 and 37 of the Standard:
(a) when an intangible asset acquired in a business combination is separable but only together with a related tangible or intangible asset, the acquirer recognises the group of assets as a single asset separately from goodwill if the individual fair values of the assets in the group are not reliably measurable.
(b) similarly, an acquirer recognises as a single asset a group of complementary intangible assets constituting a brand if the individual fair values of the complementary assets are not reliably measurable. If the individual fair values of the complementary assets are reliably measurable, the acquirer may recognise them as a single asset separately from goodwill, provided the individual assets have similar useful lives.

BC24 Therefore, although the Board decided not to proceed with the proposal that, with the exception of an assembled workforce, sufficient information should always exist to measure reliably the fair value of an intangible asset acquired in a business combination, the Board also decided:
(a) to clarify in paragraph 35 of the Standard that the fair value of an intangible asset acquired in a business combination can normally be measured with sufficient reliability for it to be recognised separately from goodwill. When, for the estimates used to measure an intangible asset's fair value, there is a range of possible outcomes with different probabilities, that uncertainty enters into the measurement of the asset's fair value, rather than demonstrates an inability to measure fair value reliably.
(b) to include in paragraph 35 of the Standard a rebuttable presumption that the fair value of a finite-lived intangible asset acquired in a business combination can be measured reliably.
(c) to clarify in paragraph 38 of the Standard that the only circumstances in which it might not be possible to measure reliably the fair value of an intangible asset acquired in a business combination are when the intangible asset arises from legal or other contractual rights and it either (i) is not separable or (ii) is separable but there is no history or evidence of exchange transactions for the same or similar assets and otherwise estimating fair value would be dependent on immeasurable variables.
(d) to include in paragraph 67(h) of IFRS 3 a requirement for entities to disclose a description of each asset that meets the definition of an intangible asset and was acquired in a business combination during the period but was not recognised separately from goodwill, and an explanation of why its fair value could not be measured reliably.

BC23 Nevertheless, the Board remained of the view that the usefulness of financial statements would be enhanced if intangible assets acquired in a business combination were distinguished from goodwill, particularly given the Board's decision to regard goodwill as an indefinite-lived asset that is not amortised. The Board also remained concerned that failing the recognition criterion of reliability of measurement might be inappropriately used by entities as a basis for not recognising intangible assets separately from goodwill. For example, IAS 22 and the previous version of IAS 38 required an acquirer to recognise an intangible asset of the acquiree separately from goodwill at the acquisition date if it was probable that any associated future economic benefits would flow to the acquirer and the asset's fair value could be measured reliably. The Board observed when developing the Exposure Draft that although intangible assets constitute an increasing proportion of the assets of many entities, those acquired in business combinations were often included in the amount recognised as goodwill, despite the requirements in IAS 22 and the previous version of IAS 38 that they be recognised separately from goodwill.

BC22 After considering respondents' comments and the experiences of field visit and round-table participants, the Board concluded that, in some instances, there might not be sufficient information to measure reliably the fair value of an intangible asset separately from goodwill, notwithstanding that the asset is identifiable. The Board observed that, except as outlined in paragraph BC25, the intangible assets whose fair values respondents and field visit and round-table participants could not measure reliably arose either:
(a) from legal or other contractual rights and are not separable (ie could be transferred only as part of the sale of a business as a whole); or
(b) from legal or other contractual rights and are separable (ie capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, asset or liability), but there is no history or evidence of exchange transactions for the same or similar assets, and otherwise estimating fair value would be dependent on immeasurable variables.