Library / Technical Accounting Manual: IFRS, IAS and Ind AS Equivalents

IAS 38 - Intangible Assets

Indian equivalent: Ind AS 38 - Intangible Assets

Objective and scope

IAS 38 deals with valuable things a company owns that you cannot physically touch - patents, trademarks, software, licences, customer lists - explaining when they qualify as assets, how they're measured, and how they're amortised.

Core principle

Not everything valuable is physical, but IFRS is strict. An intangible becomes a balance-sheet asset only if it is identifiable, controlled by the entity, and expected to bring future economic benefits whose cost can be measured reliably. Most internally generated intangibles (brands, research, goodwill) can't be recorded.

Defined terms and technical terminology

Term	Technical meaning
Intangible asset	An identifiable, non-monetary asset without physical substance (patent, licence, software).
Identifiable	Separable (can be sold on its own) or arising from contractual/legal rights.
Amortisation	The systematic write-off of a finite-life intangible over its useful life (the intangible equivalent of depreciation).
Research phase	Original planned investigation for new knowledge - costs must be expensed.
Development phase	Applying research to a planned product/process - costs may be capitalised if strict criteria are met.
Indefinite useful life	No foreseeable limit to benefits - not amortised, but tested for impairment annually.
Goodwill	The premium paid to acquire a business over its net identifiable assets - recognised only on acquisition, never self-generated.

Application and worked illustrations

The recognition criteria

To capitalise an intangible you need identifiability, control, and probable future benefits, and the cost must be reliably measurable. Purchased intangibles (a bought patent, acquired software licence) usually qualify easily. Internally generated ones are heavily restricted.

The research vs development split - IAS 38's signature rule

Spending to search for new knowledge (research) must be expensed immediately - too uncertain to be an asset. Once a project crosses into development - a specific, technically feasible product the entity intends and is able to complete, use or sell, with probable future benefits and measurable cost - costs from that point may be capitalised. The six criteria are often remembered as PIRATE: Probable benefits, Intention to complete, Resources adequate, Ability to use/sell, Technical feasibility, Expenditure measurable.

Worked example - a pharma company

MediCure spends ₹2 crore investigating a new molecule (research) - all expensed. It then identifies a viable drug, gets promising trial data, commits to launch, and spends ₹3 crore on development. Meeting the criteria, the ₹3 crore is capitalised as an intangible and amortised over the patent life once the drug is sold.

Journal entry - Capitalise development costs
Account	Debit (₹)	Credit (₹)
Intangible asset - Development	3,00,00,000
Bank / Payables		3,00,00,000

Why your own brand isn't on the balance sheet

Internally generated brands, mastheads, publishing titles, customer lists and goodwill are specifically prohibited - their cost can't be separated from the cost of running the whole business. But a brand bought from another company can be recognised, because there was an actual price. This is precisely why goodwill appears only on acquisition.

Common mistake: capitalising research or advertising/start-up costs. These are expensed. Only qualifying development costs are capitalised.

Common mistake: amortising an indefinite-life intangible (like certain acquired brands). These are not amortised but tested for impairment annually.

IND AS LINK

Ind AS 38 matches IAS 38 - research expensed, development capitalised on meeting criteria, and the ban on internally generated goodwill and brands.

Further worked illustrations

Extra numeric example - amortising a purchased licence

A company buys a 5-year software licence for ₹10,00,000. It has a finite useful life, so it is amortised straight-line at ₹2,00,000 per year. After 2 years the carrying amount is ₹6,00,000. Contrast this with a purchased brand assessed as having an indefinite life - that is not amortised but impairment-tested annually.

Journal entry - Annual amortisation of the licence
Account	Debit (₹)	Credit (₹)
Amortisation expense (P&L)	2,00,000
Accumulated amortisation		2,00,000

INDIAN REGULATORY CONTEXT

Indian telecom operators pay enormous sums for spectrum licences, recognised as intangible assets under Ind AS 38 and amortised over the licence period. The related deferred payment obligations and the start date of amortisation (when the spectrum is ready for use) are areas of significant judgement and disclosure in Indian telecom accounts.

TECHNICAL EDGE CASE

A company builds its own e-commerce website. Costs in the planning/research stage are expensed; costs in the application-development stage (coding the functionality) may be capitalised if they'll generate future revenue; but costs of content and ongoing operation are expensed. The same project therefore splits across expense and asset depending on the stage of each cost - a frequent source of error.