Intangible Assets: Meaning, Examples & IAS 38 Accounting
Intangible assets
Some of the most valuable things a company owns can't be touched — a patent, a brand, a piece of software, the goodwill built into an acquisition. These are intangible assets, and accounting has precise rules for when they land on the balance sheet and how their cost is spread over time. This guide covers the definition, examples, IAS 38 recognition and amortisation, goodwill, and how US GAAP differs.
An intangible asset is an identifiable, non-monetary asset without physical substance — such as a patent, trademark, licence, copyright or software. Under IAS 38, it's recognised only if it's identifiable, controlled by the entity, and expected to generate future economic benefits whose cost can be measured reliably.
Purchased or acquired intangibles are recorded on the balance sheet at cost. Those with a finite life are amortised; those with an indefinite life are not amortised but tested for impairment. Crucially, most internally generated items — brands, customer lists, internal goodwill — cannot be recognised at all.
What is an intangible asset?
An intangible asset is an identifiable non-monetary asset without physical substance, held for use in producing goods or services, for rental, or for administrative purposes. Under IAS 38, an item only qualifies if it meets three tests.
| Criterion | What it means |
|---|---|
| Identifiable | Separable (can be sold or licensed on its own) or arises from contractual or legal rights |
| Control | The entity can obtain the future benefits and restrict others' access to them |
| Future economic benefits | Expected revenue, cost savings or other benefits will flow to the entity |
It's recognised on the balance sheet only when those future benefits are probable and the cost can be measured reliably. Watch our short explainer, then work through the rules below.
Intangible vs tangible assets
The obvious difference is physical form — but the accounting treatment differs too.
| Aspect | Tangible assets | Intangible assets |
|---|---|---|
| Physical form | Yes | No |
| Examples | Land, machinery, inventory | Patents, trademarks, software, goodwill |
| On the balance sheet? | Recognised | Recognised if purchased/acquired; internally generated ones generally are not |
| Spread over time via | Depreciation | Amortisation (finite life) or impairment (indefinite life) |
| Governing IFRS | IAS 16 | IAS 38 |
It's often said "intangible assets don't appear on the balance sheet." That's only half true. Purchased or acquired intangibles — a bought patent, an acquired customer list, software licences — are recognised. What can't be recognised are most internally generated intangibles, like your own brand or reputation, because their cost can't be reliably separated from the cost of running the business.
Examples of intangible assets
| Intangible asset | Typical treatment |
|---|---|
| Patents | Finite life; amortise over legal/useful life |
| Trademarks & brands | Finite or indefinite life |
| Copyrights | Finite life; amortise |
| Licences & franchises | Finite life; amortise over the term |
| Computer software | Finite life; amortise (purchased, or qualifying development costs) |
| Customer lists | Capitalised only if acquired — not if internally generated |
| Goodwill | Only if acquired (IFRS 3); not amortised, impairment tested |
Finite vs indefinite useful life
How an intangible is expensed after recognition depends entirely on whether its useful life is finite or indefinite.
| Useful life | Treatment | Examples |
|---|---|---|
| Finite | Amortise systematically over the useful life (usually straight-line); test for impairment if indicators exist | Patents, licences, software, copyrights, acquired customer lists |
| Indefinite | Do not amortise; test for impairment at least annually | Some brands/trademarks, goodwill (under IFRS 3) |
They're the same idea — spreading cost over useful life — applied to different assets. Depreciation is for tangible assets (see depreciation); amortisation is for finite-life intangibles. "Indefinite" doesn't mean infinite — it means there's no foreseeable limit today, so the asset is impairment-tested instead of amortised.
Recognition: the internally generated rule
This is where most intangibles are won or lost. IAS 38 draws a hard line between buying an intangible and building one yourself, and between research and development.
Research vs development
Investigating for new knowledge — no certain outcome yet.
→ Always expensed as incurred
Applying findings to a planned product or process.
→ Capitalised only if all criteria are met
Development costs may be capitalised only when the entity can demonstrate all six "PIRATE" conditions:
- Probable future economic benefits will flow.
- Intention to complete and use or sell the asset.
- Resources (technical and financial) are adequate to complete it.
- Ability to use or sell the asset.
- Technical feasibility of completing it.
- Expenditure can be measured reliably.
IAS 38 prohibits recognising internally generated goodwill, brands, mastheads, publishing titles and customer lists. Their cost can't be separated from the cost of developing the business as a whole — so the money spent building them is expensed, even though they may be hugely valuable.
Is software an intangible asset?
Yes. Software has no physical substance but clearly carries value, so it's typically an intangible asset under IAS 38. Purchased software and licences are capitalised at cost; internally developed software can be capitalised for the development-phase costs that meet the recognition criteria, while research-phase and ongoing maintenance costs are expensed. To capitalise, the software generally needs an identifiable cost and a useful life of more than a year.
Is goodwill an intangible asset?
Yes — but a special one. Goodwill is the premium paid to acquire a business above the fair value of its identifiable net assets. It only arises in a business combination (it's governed by IFRS 3, not IAS 38), it's never amortised, and it's tested for impairment at least annually.
A company acquires a business for ₹10 crore. The fair value of the identifiable net assets acquired (assets minus liabilities) is ₹7 crore. The extra ₹3 crore paid is goodwill, recognised on the acquirer's balance sheet. By contrast, the goodwill you build in your own business — reputation, loyal customers — is internally generated and is never recognised.
How to value intangible assets
When intangibles do need valuing — for an acquisition, purchase price allocation or impairment test — three approaches are standard:
| Approach | How it works |
|---|---|
| Cost approach | What it would cost to recreate or replace the asset |
| Market approach | Prices from comparable arm's-length transactions |
| Income approach | Present value of the future cash flows the asset generates (e.g. discounted cash flow or relief-from-royalty) |
The residual method — total purchase price less the fair value of identifiable net assets — is how goodwill in particular is derived in a business combination.
Accounting for intangible assets under IFRS (IAS 38)
Intangibles are measured initially at cost (or fair value if acquired in a business combination). After recognition, an entity chooses either:
- Cost model — cost less accumulated amortisation and impairment. Used in almost all cases.
- Revaluation model — carried at fair value, but only where an active market exists. That's rare for intangibles, so it's seldom used.
Finite-life intangibles are amortised over their useful life and impairment-tested when indicators arise. Indefinite-life intangibles aren't amortised but are tested for impairment at least annually under IAS 36.
Accounting for intangible assets under US GAAP
US GAAP (mainly ASC 350, Intangibles — Goodwill and Other) reaches broadly similar answers on amortisation and impairment, but differs sharply on two points: research and development, and revaluation.
- R&D is generally expensed as incurred (ASC 730) — US GAAP does not permit the IFRS-style capitalisation of development costs, apart from limited software exceptions.
- No revaluation model — intangibles are carried at cost, never revalued upward.
- Finite-life intangibles are amortised; indefinite-life intangibles and goodwill are not amortised but impairment-tested. Private companies may elect to amortise goodwill over up to 10 years.
IFRS vs US GAAP at a glance
| Area | IFRS (IAS 38) | US GAAP (ASC 350 / 730) |
|---|---|---|
| Research costs | Expensed | Expensed |
| Development costs | Capitalised if PIRATE criteria met | Generally expensed (limited software exceptions) |
| Revaluation model | Allowed (rare — needs active market) | Not permitted |
| Finite-life intangibles | Amortised | Amortised |
| Indefinite-life & goodwill | Not amortised; impairment tested | Not amortised; impairment tested (private cos may elect to amortise goodwill) |
Are NFTs and crypto intangible assets?
Generally, yes under IFRS. Holdings of crypto-assets and NFTs usually fall under IAS 38 as intangible assets — unless they're held for sale in the ordinary course of business, in which case they're inventory (IAS 2). US GAAP has moved fungible crypto-assets to fair-value measurement through profit or loss under a recent standard, while NFTs typically remain in the intangible-asset model. It's an evolving area — see our digital finance and blockchain courses for where reporting is heading.
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Intangible assets, R&D capitalisation and goodwill are staple exam and practice topics. The ACCA Diploma in IFRS covers them in full, with worked examples and expert coaching — registration and tuition handled end-to-end by Eduyush.
Explore the DipIFR course US GAAP certificateFrequently asked questions
What are intangible assets in simple terms?
What are examples of intangible assets?
Are intangible assets on the balance sheet?
Is goodwill an intangible asset?
Is software an intangible asset?
Are intangible assets amortised or depreciated?
How are research and development costs treated?
Which accounting standard governs intangible assets?
Conclusion
Intangible assets capture the value a business holds beyond its physical property — but accounting recognises that value only under strict conditions. Buy or acquire an intangible and it goes on the balance sheet at cost; build most intangibles yourself and the spend is expensed. Finite lives are amortised, indefinite lives are impairment-tested, and research is always expensed while development is capitalised only when it qualifies. Get those distinctions right and IAS 38 — one of the more judgement-heavy standards — becomes far more manageable.
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