Recognise and amortise intangible assets under IAS 38
Test identifiability, control and future benefit, then distinguish eligible development from research, training, advertising and internally generated goodwill.
Section 3.2 · Regulatory and ethical considerations
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. These lessons cover the nine named IAS at the main-provisions level described in Cambridge teacher guidance, the stated ethical principles, audit and stewardship. Practice is self-checked, not an official Cambridge grade. Full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Use the Topic 1.5 and 3.1 statement skills: identify the reporting period, distinguish profit from cash, and explain how a reporting choice affects users of financial statements.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
A purchased licence is identifiable and controlled, with probable future benefits and measurable cost. What should be considered next?
What you will learn
- Define an intangible asset and apply recognition criteria
- Distinguish research from qualifying development expenditure
- Explain finite and indefinite useful-life treatment
An intangible asset must be identifiable and controlled
An intangible asset is an identifiable non-monetary asset without physical substance. It must be separable or arise from contractual or legal rights, be controlled by the entity and be expected to generate future economic benefits. Cost must be measured reliably and future benefits must be probable for recognition under the syllabus guidance.
A purchased patent or software licence may meet the definition. A reputation built internally is not automatically a separately identifiable, reliably measured asset; internally generated goodwill is not recognised. Naming an expenditure as an asset does not make it one: apply the definition and recognition criteria.
Separate research, development and later allocation
Research expenditure is charged as an expense. Development expenditure may be capitalised only after technical and commercial feasibility and the other recognition conditions have been established. Training, start-up, advertising and promotional costs are expenses when incurred under the stated syllabus guidance.
A finite-life intangible is amortised systematically over its useful life and reviewed for impairment. An asset with an indefinite life is not amortised but is assessed for impairment. Do not call a life indefinite merely because management has not chosen a useful-life estimate; evidence must support the classification.
Pause and explain
What is the broad treatment of an intangible asset with a finite useful life?
Worked example
A firm spends $20,000 on early research, then $30,000 on development after technical feasibility is demonstrated and reliable cost records begin. Explain the broad treatment and state one additional condition.
Show the worked solution
- Charge the $20,000 research cost to expense.
- The $30,000 development cost may be capitalised only from the point the specified development recognition conditions are met.
- Also establish probable future economic benefits and reliable measurement; feasibility alone is not a complete asset test.
Answer Expense the research. Capitalise development only from the date all required recognition criteria, including probable benefits and reliable measurement, are met.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
Classify four costs: early research $8,000; feasible development meeting recognition criteria $15,000; staff training $2,000; purchased patent $24,000 with probable benefits and reliable cost.
Give me a hint
Apply the research/development distinction and test separately purchased rights.
Compare my reasoning
- Research $8,000 is an expense.
- Qualifying development $15,000 may be capitalised from when all recognition criteria are met.
- Training $2,000 is an expense; the purchased patent $24,000 may be recognised as an intangible asset if the stated criteria are met.
Expense research and training. Capitalise qualifying development from the eligible date and recognise the purchased patent if its recognition conditions are met.
Look for these in your work
- Research expensed
- Eligible development distinguished
- Training and patent treated separately
A software licence costs $36,000, has a finite useful life of six years and no residual value. Calculate annual straight-line amortisation and its carrying amount after two years, before impairment.
Give me a hint
Allocate cost evenly over the finite useful life.
Compare my reasoning
- Annual amortisation = $36,000 ÷ 6 = $6,000.
- Two years' accumulated amortisation = 2 × $6,000 = $12,000.
- Carrying amount = $36,000 − $12,000 = $24,000 before impairment.
Annual amortisation $6,000; carrying amount after two years $24,000 before impairment.
Look for these in your work
- Finite life recognized
- Annual amount correct
- Carrying amount reconciled
A start-up has spent $70,000 promoting its brand and $25,000 training staff. The founder says these costs created future sales, so both are intangible assets. Evaluate the claim under IAS 38.
Give me a hint
Future benefit alone is not enough; apply the definition and the syllabus's specific treatment for these costs.
Compare my reasoning
- The expected sales benefit does not by itself make advertising or training separately identifiable and controlled assets.
- The teacher guidance treats advertising, promotion and training as expenses when incurred.
- Do not recognise internally generated goodwill or a brand merely because management expects future revenue.
The claim is not sufficient. Expense the promotion and training costs under the syllabus guidance; do not record internally generated goodwill or a brand without meeting IAS 38 requirements.
Look for these in your work
- Definition applied
- Specific expense treatment used
- Future benefit not treated as sufficient
Common mistakes
- Capitalising all development spending because a project eventually succeeds
- Recognising internal reputation as purchased goodwill
- Amortising an indefinite-life intangible each year
What can you explain now?
How is research expenditure treated under the teacher guidance?
Compare with the explanation
Expensed as incurred
Research costs are charged to profit or loss; development has a separate feasibility test.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
Name three intangible-asset recognition characteristics and state the difference between finite and indefinite useful life.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.