IAS 38 intangible assets explained

For technology, media and pharmaceutical companies, intangible assets are often the most valuable things they own, yet many never appear on the balance sheet. This guide explains what IAS 38 counts as an intangible asset, how acquired and internally generated intangibles differ, and how amortisation and indefinite lives work.

By Awais Jameel, Chartered Accountant. Reviewed by Muhammad Bilal, Chartered Accountant. 3 minute read.

Short answer

IAS 38 Intangible Assets covers identifiable non-monetary assets without physical substance, such as software, licences, patents, customer lists and brands. An intangible asset is recognised when it is identifiable, controlled by the company and expected to generate future economic benefits, and its cost can be measured reliably. Assets with finite useful lives are amortised; those with indefinite lives are not amortised but tested for impairment annually. Internally generated brands, customer lists and goodwill are never recognised.

At a glance

Definition
Identifiable, non-monetary, no physical substance
Recognise when
Control, future benefits, reliable cost
Finite life
Amortised
Indefinite life
Annual impairment test instead
Internally generated brands
Never recognised
Revaluation
Only with an active market
IAS 38 intangible assets explainedDefinition: Identifiable, non-monetary, no physical substance; Recognise when: Control, future benefits, reliable cost; Finite life: Amortised; Indefinite life: Annual impairment test instead; Internally generated brands: Never recognised; Revaluation: Only with an active market.KEY FACTS AT A GLANCEIAS 38 intangible assets explainedDefinitionIdentifiable,non-monetary, no physicalsubstanceRecognise whenControl, future benefits,reliable costFinite lifeAmortisedIndefinite lifeAnnual impairment testinsteadInternally generated brandsNever recognisedRevaluationOnly with an activemarketTax BakersIAS 38 intangible assets explainedDefinition: Identifiable, non-monetary, no physical substance; Recognise when: Control, future benefits, reliable cost; Finite life: Amortised; Indefinite life: Annual impairment test instead; Internally generated brands: Never recognised; Revaluation: Only with an active market.KEY FACTS AT A GLANCEIAS 38 intangible assets explainedDefinitionIdentifiable, non-monetary, no physicalsubstanceRecognise whenControl, future benefits, reliable costFinite lifeAmortisedIndefinite lifeAnnual impairment test insteadInternally generated brandsNever recognisedRevaluationOnly with an active marketTax Bakers
Key facts at a glance, as set out in this guide.

What is an intangible asset under IAS 38?

An identifiable non-monetary asset without physical substance. Identifiable means it is separable, capable of being sold, licensed or rented on its own, or arises from contractual or legal rights. The company must control it, usually through legal rights, and expect future economic benefits, such as revenue or cost savings. A skilled workforce or market share fails the control test, so it is not an intangible asset.

How is an intangible asset acquired?

How an intangible asset reaches the balance sheetHow an intangible asset reaches the balance sheetRecognised?Measured atAcquiredseparatelyYesCostIn a businesscombinationYes, ifidentifiableFair valueDevelopedinternallyDevelopment only,if criteria metCost from whencriteria metInternally builtbrandNever
The same kind of asset can be recognised or not depending on how it was obtained.
  • Acquired separately: recognised at cost, including the purchase price and directly attributable costs such as legal fees.
  • In a business combination: recognised at fair value if identifiable, even if the acquired company never recognised it, such as customer relationships, order backlogs and brands. See purchase price allocation.
  • Internally generated: research costs are expensed; development costs are capitalised only once six criteria are met. Internally generated brands, mastheads, publishing titles, customer lists and goodwill are never recognised. See research and development costs.

How are intangible assets amortised?

An intangible asset with a finite useful life is amortised systematically over that life, usually straight-line, starting when it is available for use, with a residual value of nil unless a third party has committed to buy it or an active market exists. A useful life based on contractual or legal rights cannot exceed the period of those rights, unless renewal is possible without significant cost.

An intangible asset has an indefinite useful life when there is no foreseeable limit to the period over which it is expected to generate cash, such as a well-established brand acquired in a business combination. It is not amortised, but tested for impairment annually, and its indefinite life is reviewed each period.

A worked example

AssetCost or fair valueUseful lifeAnnual charge
Software licence bought for 5 years500,0005 years100,000 amortisation
Customer relationships from an acquisition1,100,00010 years, based on customer attrition110,000 amortisation
Brand from the same acquisition800,000IndefiniteNone; annual impairment test
Brand the company built itselfNot recognisedMarketing costs expensed

Can intangible assets be revalued?

Only if there is an active market, with homogeneous items, willing buyers and sellers at any time, and available prices. That is rare for intangible assets: it may exist for taxi licences, fishing quotas or emission allowances, but not for brands, patents or software. Most companies use the cost model.

What about later spending on an intangible asset?

Most later spending maintains the expected benefits of an existing intangible asset and is expensed. Spending on brands, mastheads, customer lists and similar items, whether acquired or internally generated, is always expensed after initial recognition, because it cannot be distinguished from developing the business as a whole.

How are intangibles tested for impairment?

Under IAS 36: intangibles with finite lives when there are indicators; indefinite-lived intangibles and intangibles not yet available for use at least annually. See IAS 36 explained.

When is an intangible asset derecognised?

On disposal, or when no future economic benefits are expected from its use or disposal. The gain or loss is recognised in profit or loss.

What must be expensed?

Start-up costs, training, advertising and promotional activities, relocating or reorganising a company, and research. Expenditure on an intangible item initially expensed cannot be capitalised later. US GAAP is similar for acquired intangibles but generally expenses development costs; see IAS 38 vs ASC 730.

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Questions people ask

What is an intangible asset under IAS 38?

An identifiable non-monetary asset without physical substance that the company controls and expects to generate future economic benefits.

Are intangible assets with indefinite lives amortised?

No. They are tested for impairment at least annually, and the indefinite life is reviewed each period.

Can an internally generated brand be recognised?

No. IAS 38 prohibits recognising internally generated brands, mastheads, publishing titles, customer lists and goodwill.

Can intangible assets be revalued under IFRS?

Only if an active market exists, which is rare for intangible assets.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IAS 38 Intangible Assets

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

IAS 38Research and development costs under IAS 38IAS 38Software, websites and cloud computing costsIFRS vs US GAAPIAS 38 vs ASC 730: research and development costs

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This guide is general information. It is not tax or legal advice for your situation.