IAS 38 Intangible Assets

31 March 2004
Contents
INTRODUCTION IN1-IN13
Reasons for revising IAS 38 IN2-IN4Summary of main changes IN5-IN13
International Accounting Standard 38Intangible Assets
OBJECTIVE 1
SCOPE 2-7
DEFINITIONS 8-17
Intangible Assets 9-17
Identifiability 11-12
Control 13-16
Future Economic Benefits 17
RECOGNITION AND MEASUREMENT 18-67
Separate Acquisition 25-32
Acquisition as Part of a BusinessCombination 33-43
Measuring the Fair Value of an IntangibleAsset Acquired in a Business Combination 35-41
Subsequent Expenditure on an Acquired In-processResearch and Development Project 42-43
Acquisition by way of a Government Grant44
Exchanges of Assets 45-47
Internally Generated Goodwill 48-50
Internally Generated Intangible Assets51-67
Research Phase 54-56
Development Phase 57-64
Cost of an Internally Generated IntangibleAsset 65-67
RECOGNITION OF AN EXPENSE 68-71
Past Expenses not to be Recognised as anAsset 71
MEASUREMENT AFTER RECOGNITION 72-87
Cost Model 74
Revaluation Model 75-87
USEFUL LIFE 88-96
INTANGIBLE ASSETS WITH FINITE USEFUL LIVES 97-106
Amortisation Period and AmortisationMethod 97-99
Residual Value 100-103
Review of Amortisation Period andAmortisation Method 104-106
INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIVES 107-110
Review of Useful Life Assessment 109-110
RECOVERABILITY OF THE CARRYING AMOUNT- IMPAIRMENT LOSSES111
RETIREMENTS AND DISPOSALS 112-117
DISCLOSURE 118-128
General 118-123
Intangible Assets Measured afterRecognition using the Revaluation Model 124-125
Research and Development Expenditure126-127
Other Information 128
TRANSITIONAL PROVISIONS AND EFFECTIVE DATE 129-132
Exchanges of Similar Assets 131
Early Application 132
WITHDRAWAL OF IAS 38 (issued 1998) 133
APPROVAL OF IAS 38 BY THE BOARD
BASIS FOR CONCLUSIONS
DISSENTING OPINION
ILLUSTRATIVE EXAMPLES
Assessing the Useful Lives of IntangibleAssets
TABLE OF CONCORDANCE
This revised Standard supersedes IAS 38(1998) Intangible Assets and should be applied:
(a) on acquisition to intangible assetsacquired in business combinations for which the agreement date is on or after31 March 2004.
(b) to all other intangible assets, forannual periods beginning on or after 31 March 2004.
Earlier application is encouraged.
International Accounting Standard 38 IntangibleAssets (IAS 38) is set out in paragraphs 1-133. All the paragraphs haveequal authority but retain the IASC format of the Standard when it was adoptedby the IASB. IAS 38 should be read in the context of its objective and theBasis for Conclusions, the Preface to International Financial ReportingStandards and the Framework for the Preparation and Presentation ofFinancial Statements. IAS 8 Accounting Policies, Changes in AccountingEstimates and Errors provides a basis for selecting and applying accountingpolicies in the absence of explicit guidance.
IAS 38 Intangible Assets

Objective
1 The objective of this Standard 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.
Scope
2   This Standard shall be applied in accounting for intangible assets, except:
(a) intangible assets that are within the scope of another Standard;
(b) financial assets, as defined in IAS 39 Financial Instruments: Recognition and Measurement; and
(c) mineral rights and expenditure on the exploration for, or development and extraction of, minerals, oil, natural gas and similar non-regenerative resources.
Prospective amendment: paragraph 2 amended by IFRS 6 Exploration for and Evaluation of Mineral Resources with effect for annual periods beginning on or after 1 January 2006. If an entity applies this IFRS 6 for an earlier period, this amendment shall be applied for that earlier period. Paragraph 2 is amended to read as follows:

2. This Standard shall be applied in accounting for intangible assets, except: (a) intangible assets that are within the scope of another Standard; (b) financial assets, as defined in IAS 39 Financial Instruments: Recognition and Measurement; (c) the recognition and measurement of exploration and evaluation assets (see IFRS 6 Exploration for and Evaluation of Mineral Resources); and (d) expenditure on the development and extraction of, minerals, oil, natural gas and similar non-regenerative resources.

3 If another Standard prescribes the accounting for a specific type of intangible asset, an entity applies that Standard instead of this Standard. For example, this Standard does not apply to:
(a) intangible assets held by an entity for sale in the ordinary course of business (see IAS 2 Inventories and IAS 11 Construction Contracts).
(b) deferred tax assets (see IAS 12 Income Taxes).
(c) leases that are within the scope of IAS 17 Leases.
(d) assets arising from employee benefits (see IAS 19 Employee Benefits).
(e) financial assets as defined in IAS 39. The recognition and measurement of some financial assets are covered by IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments in Associates and IAS 31 Interests in Joint Ventures.
(f) goodwill acquired in a business combination (see IFRS 3 Business Combinations).
(g) deferred acquisition costs, and intangible assets, arising from an insurer's contractual rights under insurance contracts within the scope of IFRS 4 Insurance Contracts. IFRS 4 sets out specific disclosure requirements for those deferred acquisition costs but not for those intangible assets. Therefore, the disclosure requirements in this Standard apply to those intangible assets.
(h) non-current intangible assets classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

Editorial note: Sub-paragraphs (h) substituted by IFRS 5 with effect for annual periods beginning on or after 1 January 2005. Earlier application is encouraged. If an entity applies the IFRS for a period beginning before 1 January 2005, it shall disclose that fact. Previously "(h) non-current intangible assets classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.".

4 Some intangible assets may be contained in or on a physical substance such as a compact disc (in the case of computer software), legal documentation (in the case of a licence or patent) or film. In determining whether an asset that incorporates both intangible and tangible elements should be treated under IAS 16 Property, Plant and Equipment or as an intangible asset under this Standard, an entity uses judgement to assess which element is more significant. For example, computer software for a computer-controlled machine tool that cannot operate without that specific software is an integral part of the related hardware and it is treated as property, plant and equipment. The same applies to the operating system of a computer. When the software is not an integral part of the related hardware, computer software is treated as an intangible asset.

5 This Standard applies to, among other things, expenditure on advertising, training, start-up, research and development activities. Research and development activities are directed to the development of knowledge. Therefore, although these activities may result in an asset with physical substance (eg a prototype), the physical element of the asset is secondary to its intangible component, ie the knowledge embodied in it.
6 In the case of a finance lease, the underlying asset may be either tangible or intangible. After initial recognition, a lessee accounts for an intangible asset held under a finance lease in accordance with this Standard. Rights under licensing agreements for items such as motion picture films, video recordings, plays, manuscripts, patents and copyrights are excluded from the scope of IAS 17 and are within the scope of this Standard.

7 Exclusions from the scope of a Standard may occur if activities or transactions are so specialised that they give rise to accounting issues that may need to be dealt with in a different way. Such issues arise in the accounting for expenditure on the exploration for, or development and extraction of, oil, gas and mineral deposits in extractive industries and in the case of insurance contracts. Therefore, this Standard does not apply to expenditure on such activities and contracts. However, this Standard applies to other intangible assets used (such as computer software), and other expenditure incurred (such as start-up costs), in extractive industries or by insurers.

Definitions
8 The following terms are used in this Standard with the meanings specified:
An active market is a market in which all the following conditions exist:
(a) the items traded in the market are homogeneous;
(b) willing buyers and sellers can normally be found at any time; and
(c) prices are available to the public.
The agreement date for a business combination is the date that a substantive agreement between the combining parties is reached and, in the case of publicly listed entities, announced to the public. In the case of a hostile takeover, the earliest date that a substantive agreement between the combining parties is reached is the date that a sufficient number of the acquiree's owners have accepted the acquirer's offer for the acquirer to obtain control of the acquiree.
Amortisation is the systematic allocation of the depreciable amount of an intangible asset over its useful life.

An asset is a resource:
(a) controlled by an entity as a result of past events; and
(b) from which future economic benefits are expected to flow to the entity.
Carrying amount is the amount at which an asset is recognised in the balance sheet after deducting any accumulated amortisation and accumulated impairment losses thereon.
Cost is the amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset at the time of its acquisition or construction, or, when applicable, the amount attributed to that asset when initially recognised in accordance with the specific requirements of other IFRSs, eg IFRS 2 Share-based Payment.
Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value.
Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use.
Entity-specific value is the present value of the cash flows an entity expects to arise from the continuing use of an asset and from its disposal at the end of its useful life or expects to incur when settling a liability.

Fair value of an asset is the amount for which that asset could be exchanged between knowledgeable, willing parties in an arm's length transaction.
An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount.
An intangible asset is an identifiable non-monetary asset without physical substance.
Monetary assets are money held and assets to be received in fixed or determinable amounts of money.
Research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding.
The residual value of an intangible asset is the estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.