An intangible asset is defined as an identifiable non-monetary asset without physical substance (IAS 38.8). Before recognition can occur, an item must meet both the definition of an intangible asset and the recognition criteria established in the standard.

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Definition Requirements

For an asset to qualify as intangible, it must satisfy three characteristics:

• Identifiability – The asset is separable (capable of being separated or divided from the entity and sold, transferred, licensed, or rented) or arises from contractual or other legal rights, regardless of whether those rights are transferable (IAS 38.11–12).
• Control – The entity must have the power to obtain future economic benefits from the asset and restrict others' access to those benefits, typically evidenced through legal rights (IAS 38.13–16).
• Future economic benefits – The asset must be expected to generate inflows such as revenue, cost savings, or other benefits (IAS 38.17).

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Recognition Criteria

An intangible asset is recognised if, and only if (IAS 38.21):

• It is probable that the expected future economic benefits attributable to the asset will flow to the entity, and
• The cost of the asset can be measured reliably.

The probability assessment must be based on reasonable and supportable assumptions representing management's best estimate of the economic conditions that will exist over the asset's useful life (IAS 38.22).

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Initial Measurement

Intangible assets are initially measured at cost (IAS 38.24). How cost is determined depends on the acquisition mode:

• Separate acquisition – Purchase price plus directly attributable costs of preparing the asset for its intended use (IAS 38.27–32).
• Business combination – Fair value at the acquisition date, as per IFRS 3 (IAS 38.33–37). The probability criterion is always considered satisfied in this context.
• Government grant – Either fair value or a nominal amount plus directly attributable expenditure (IAS 38.44).
• Exchange of assets – Fair value, unless the exchange lacks commercial substance (IAS 38.45–47).

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Internally Generated Intangibles – Special Rules

Internally generated goodwill is never recognised (IAS 38.48). For other internally generated intangibles, expenditure must be classified into a research phase and a development phase (IAS 38.52):

• Research phase costs are always expensed as incurred (IAS 38.54).
• Development phase costs are capitalised only when all six criteria in IAS 38.57 are met, including technical feasibility, intention to complete, ability to use or sell, availability of resources, and reliable measurement of expenditure.

Certain internally generated items are explicitly prohibited from recognition, including internally generated brands, mastheads, publishing titles, customer lists, and similar items (IAS 38.63).

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Subsequent Measurement

After initial recognition, entities may choose either the cost model (cost less accumulated amortisation and impairment losses) or the revaluation model (fair value less subsequent amortisation and impairment), provided an active market exists for the asset (IAS 38.72–73).

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Key Takeaway

Recognition under IAS 38 is a two-gate test — definitional and probabilistic — with particularly stringent rules for internally generated assets to prevent overstatement of assets on the balance sheet.