What is the identifiability criterion for intangible assets under IAS 38.12?

Core rule Under the IAS 38.12 identifiability criterion, an intangible asset is identifiable — and therefore distinct from goodwill — if it is either separable from the entity or arises from contractual or other legal rights, regardless of whether those rights are transferable or separable. How it works The IAS 38.12 identifiability criterion is the gateway test that distinguishes a recognisable intangible asset from unidentifiable value subsumed within goodwill. Two alternative conditions satisfy it: - Separability (IAS 38.12(a)): The asset can be separated or divided from the entity and sold, transferred, licensed, rented, or exchanged — either individually or together with a related contract, identifiable asset, or liability. The ability to separate is sufficient; the entity does not need to intend to sell or actually have separated it before. - Contractual-legal criterion (IAS 38.12(b)): The asset arises from contractual or other legal rights (e.g., patents, licences, trademarks, franchise agreements, customer contracts). Critically, these rights qualify even if they are not separable from the entity or from other rights and obligations (IAS 38.12(b) proviso). A non-transferable broadcast licence, for example, still meets identifiability if it arises from a legal right. - Relationship to the definition of an asset (IAS 38.8–38.10): Id

How does IAS 38.12 identifiability interact with the control criterion under IAS 38.13 when assessing an assembled workforce acquired in a business combination?

entifiability is one element of the three-part intangible asset definition. The item must also be (i) non-monetary, (ii) without physical substance, and (iii) controlled by the entity as a result of past events, with future economic benefits expected to flow to the entity. - Control distinguished from identifiability (IAS 38.13–38.16): Control requires the power to obtain future economic benefits and to restrict others' access. A skilled workforce or a customer list maintained purely through relationships — where the entity has no legal protection — typically fails the control test rather than identifiability, but practitioners must assess both gates separately. - Measurement on initial recognition (IAS 38.24): Once identifiability is established, the asset is measured at cost. In a business combination, the acquisition-date fair value is the cost (IFRS 3.18), and the identifiability criterion determines whether value is allocated to a discrete intangible rather than to goodwill (IFRS 3.B31–B32). - Disclosure of judgement (IAS 38.118–122): Entities must disclose the useful life assessment and the basis for any indefinite-life determination. Where identifiability judgements are material (e.g., whether a customer relationship constitutes a separable asset), this often warrants disclosure as a significant accounting judgement under IAS 1.122

Under IFRS 3.B32, when can a non-contractual customer relationship still be recognised as a separate intangible asset, and what evidence of separability is required?

. Practical example Scenario: Acquirer pays €10 million to acquire a target. At acquisition date, the target holds an internally developed customer list with an assessed fair value of €1.2 million and a patent (contractual-legal right) with a fair value of €800,000. Net identifiable assets (excluding these intangibles) have a fair value of €6.5 million. Residual goodwill = €10m − €6.5m − €1.2m − €0.8m = €1.5m. Journal entry at acquisition (Acquirer's books): | Account | Dr (€000) | Cr (€000) | |---|---|---| | Net identifiable assets (various) | 6,500 | | | Customer list – intangible asset | 1,200 | | | Patent – intangible asset | 800 | | | Goodwill | 1,500 | | | Cash / consideration payable | | 10,000 | The customer list qualifies under the separability limb (IAS 38.12(a)) — it can be sold with the associated contracts. The patent qualifies under the contractual-legal limb (IAS 38.12(b)). Both are therefore recognised separately, reducing goodwill. Common pitfalls - Conflating identifiability with separability: Practitioners sometimes reject an intangible asset because it cannot be sold standalone, overlooking that the contractual-legal criterion (IAS 38.12(b)) provides an independent route to identifiability. A perpetual exclusive supply agreement that is non-transferable still qualifies. - Internallygenerated intangibles in business com

How should an entity account for a customer list acquired in a business combination that becomes impaired in Year 2 — what are the IAS 36 cash-generating unit allocation rules that apply?

binations: IAS 38.33–38.34 prohibit recognition of internally generated goodwill, brands, and mastheads as assets in stand-alone accounts. However, the same items can be recognised when acquired in a business combination, because the acquirer can measure fair value reliably at that date (IFRS 3.B31). Auditors frequently flag entities that fail to recognise such assets, inflating goodwill and understating intangibles. - Customer relationships vs. customer lists: A customer relationship may meet identifiability even when no contract exists, if the separability criterion is met — e.g., observable market transactions for similar relationships exist (IFRS 3.B32). Failing to distinguish contractual from non-contractual customer relationships leads to under-allocation of purchase price. Key paragraphs to know - IAS 38.12 — the two-limb identifiability criterion (separability; contractual-legal rights) - IAS 38.13–38.16 — control criterion; workforce and customer relationship examples - IAS 38.33–38.34 — prohibition on recognising internally generated intangibles (brands, mastheads, customer lists) - IFRS 3.B31–B32 — application of identifiability in a business combination context - IAS 38.24 — initial measurement at cost; fair value in a business combination - IAS 1.122 — disclosure of significant judgements relating to identifiability assessmen

IAS 38.12 Identifiability Criterion

IAS 38.12 Identifiability — Core Rule

Under the IAS 38.12 identifiability criterion, an intangible asset is identifiable — and therefore distinct from goodwill — if it is either separable from the entity or arises from contractual or other legal rights, regardless of whether those rights are transferable or separable.

How IAS 38.12 Identifiability Works

The IAS 38.12 identifiability criterion is the gateway test that distinguishes a recognisable intangible asset from unidentifiable value subsumed within goodwill. Two alternative conditions satisfy it:

Separability (IAS 38.12(a)): The asset can be separated or divided from the entity and sold, transferred, licensed, rented, or exchanged — either individually or together with a related contract, identifiable asset, or liability. The ability to separate is sufficient; the entity does not need to intend to sell or actually have separated it before.

Contractual-legal criterion (IAS 38.12(b)): The asset arises from contractual or other legal rights (e.g., patents, licences, trademarks, franchise agreements, customer contracts). Critically, these rights qualify even if they are not separable from the entity or from other rights and obligations (IAS 38.12(b) proviso). A non-transferable broadcast licence, for example, still meets identifiability if it arises from a legal right.

Relationship to the definition of an asset (IAS 38.8–38.10): Identifiability is one element of the three-part intangible asset definition. The item must also be (i) non-monetary, (ii) without physical substance, and (iii) controlled by the entity as a result of past events, with future economic benefits expected to flow to the entity.

Control distinguished from identifiability (IAS 38.13–38.16): Control requires the power to obtain future economic benefits and to restrict others' access. A skilled workforce or a customer list maintained purely through relationships — where the entity has no legal protection — typically fails the control test rather than identifiability, but practitioners must assess both gates separately.

Measurement on initial recognition (IAS 38.24): Once identifiability is established, the asset is measured at cost. In a business combination, the acquisition-date fair value is the cost (IFRS 3.18), and the identifiability criterion determines whether value is allocated to a discrete intangible rather than to goodwill (IFRS 3.B31–B32).

Disclosure of judgement (IAS 38.118–122): Entities must disclose the useful life assessment and the basis for any indefinite-life determination. Where identifiability judgements are material (e.g., whether a customer relationship constitutes a separable asset), this often warrants disclosure as a significant accounting judgement under IAS 1.122.

IAS 38.12 Identifiability — Practical Example

Scenario: Acquirer pays €10 million to acquire a target. At acquisition date, the target holds an internally developed customer list with an assessed fair value of €1.2 million and a patent (contractual-legal right) with a fair value of €800,000. Net identifiable assets (excluding these intangibles) have a fair value of €6.5 million. Residual goodwill = €10m − €6.5m − €1.2m − €0.8m = €1.5m.

Journal entry at acquisition (Acquirer's books)

Account	Dr (€000)	Cr (€000)
Net identifiable assets (various)	6,500
Customer list – intangible asset	1,200
Patent – intangible asset	800
Goodwill	1,500
Cash / consideration payable		10,000

The customer list qualifies under the separability limb (IAS 38.12(a)) — it can be sold with the associated contracts. The patent qualifies under the contractual-legal limb (IAS 38.12(b)). Both are therefore recognised separately, reducing goodwill.

IAS 38.12 Identifiability — Common Pitfalls

Conflating identifiability with separability: Practitioners sometimes reject an intangible asset because it cannot be sold standalone, overlooking that the contractual-legal criterion (IAS 38.12(b)) provides an independent route to identifiability. A perpetual exclusive supply agreement that is non-transferable still qualifies.

Internallygenerated intangibles in business combinations: IAS 38.33–38.34 prohibit recognition of internally generated goodwill, brands, and mastheads as assets in stand-alone accounts. However, the same items can be recognised when acquired in a business combination, because the acquirer can measure fair value reliably at that date (IFRS 3.B31). Auditors frequently flag entities that fail to recognise such assets, inflating goodwill and understating intangibles.

Customer relationships vs. customer lists: A customer relationship may meet identifiability even when no contract exists, if the separability criterion is met — e.g., observable market transactions for similar relationships exist (IFRS 3.B32). Failing to distinguish contractual from non-contractual customer relationships leads to under-allocation of purchase price.

IAS 38.12 Identifiability — Key Paragraphs

IAS 38.12 — the two-limb identifiability criterion (separability; contractual-legal rights)
IAS 38.13–38.16 — control criterion; workforce and customer relationship examples
IAS 38.33–38.34 — prohibition on recognising internally generated intangibles (brands, mastheads, customer lists)
IFRS 3.B31–B32 — application of identifiability in a business combination context
IAS 38.24 — initial measurement at cost; fair value in a business combination
IAS 1.122 — disclosure of significant judgements relating to identifiability assessments