IAS 38 Intangible Assets (summary) - applies in 2025

Summary

This video provides an in-depth explanation of IAS 38, focusing on intangible assets and their recognition and measurement. It covers essential topics such as the criteria for recognizing intangible assets, including internally generated assets like development costs and research. The video highlights key rules about measuring intangible assets at cost or revaluation, amortization, and impairment. It also discusses the de-recognition process and how to account for gains or losses on disposal. The video aims to simplify IFRS concepts, helping users navigate the complexities of accounting for intangible assets in a practical way.

Takeaways

• 😀 IAS 38 applies to intangible assets that are not covered by other IFRS standards, such as goodwill or financial assets.
• 😀 An intangible asset must be identifiable, non-monetary, and lack physical substance, and must provide future economic benefits.
• 😀 To recognize an intangible asset, it must be probable that future economic benefits will flow to the entity, and its cost must be reliably measurable.
• 😀 Internally generated intangible assets, like development costs, can only be capitalized when commercial and technical feasibility are proven (using the mnemonic PIRATE).
• 😀 Research costs should be expensed as incurred, as they do not meet the recognition criteria for intangible assets.
• 😀 Internally generated goodwill cannot be recognized as an intangible asset and should be distinguished from goodwill acquired in a business combination.
• 😀 Brands, customer lists, and similar intangible assets cannot be capitalized because they fail to meet the recognition criteria of identifiable assets.
• 😀 Intangible assets can be measured using either the cost model (cost less amortization and impairment) or the revaluation model (fair value less amortization and impairment).
• 😀 Amortization is applied to intangible assets with finite useful lives, but those with indefinite useful lives, like brands, are not amortized and are tested for impairment annually.
• 😀 When an intangible asset is disposed of or no longer provides economic benefits, it is derecognized, and any gain or loss should be recognized in profit or loss.

Q & A

What is the main objective of IAS 38?

The main objective of IAS 38 is to specify the accounting treatment for intangible assets not covered by another standard.

What defines an intangible asset under IAS 38?

An intangible asset is an identifiable, non-monetary asset without physical substance that is controlled by an entity as a result of past events and from which future economic benefits are expected to flow.

What are the conditions required for recognizing an intangible asset?

To recognize an intangible asset, it must be probable that future economic benefits will flow to the entity, and the cost of the asset must be reliably measurable.

What are the two primary models for measuring intangible assets after initial recognition?

The two primary models are the cost model, which measures assets at cost less accumulated amortization and impairment, and the revaluation model, which measures assets at fair value less subsequent amortization and impairment.

How does the treatment of research costs differ from development costs under IAS 38?

Research costs must be expensed as incurred and cannot be capitalized, while development costs can be capitalized if certain criteria are met, such as proving commercial and technical feasibility.

What is the 'Pirate' mnemonic used for in the context of IAS 38?

The 'Pirate' mnemonic helps remember the criteria for capitalizing development costs, standing for probable future economic benefits, intention to complete and use or sell the asset, adequate resources, technical feasibility, reliable cost measurement, and ability to use or sell the asset.

What is the treatment for internally generated goodwill under IAS 38?

Internally generated goodwill is never recognized as an asset under IAS 38 and should not be confused with goodwill acquired in a business combination.

How is the useful life of intangible assets treated for amortization purposes?

Intangible assets with a finite useful life are amortized over their expected useful life, while those with an indefinite useful life are not amortized but are reviewed annually for impairment.

What happens if an intangible asset's carrying amount increases under the revaluation model?

If the carrying amount of an intangible asset increases under the revaluation model, the increase is credited to equity under revaluation surplus, unless the asset had previously been impaired, in which case the increase is recognized in profit or loss.

How should an intangible asset be derecognized under IAS 38?

An intangible asset is derecognized when it is disposed of or no longer provides future economic benefits, with any gain or loss recognized in profit or loss based on the net disposal proceeds and the asset’s carrying amount.