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IAS 38 Intangible assets – what is it and how it is in ACCA SBR exam?

Under non-current assets, tangible and non-tangible assets are two major classes of assets.

Usually, the application of tangible assets accounting standards in financial reporting tangible assets are easier to be understood. For example, IAS 16 Property, Plant & Equipment governs the recognition, accounting treatment and disclosure of tangible assets except assets held for sale and biological assets related to agricultural activity.

Many students are confused about intangible assets and it’s accounting standards. In this article, I introduce what is intangible asset and followed by how does IAS 38 Intangible assets say in recognition, measurement and disclosure. Finally, an ACCA SBR past paper question is discussed to help you understand how to apply the knowledge in ACCA SBR exam.

What is intangible asset?

Intangible asset refers to asset that is not physically existed which is opposite to tangible asset. Traditionally, patent, goodwill, copyright, franchise, trade mark and trade names are examples of intangible assets.

An intangible asset is an identifiable non-monetary asset without physical substance. Such an asset is identifiable when it is separable, or when it arises from contractual or other legal rights.

A key word here is separable. An asset is separable means the asset can be transferred, sold or licensed to other party. Examples include computer software, licenses, trademarks, patents, films, copyrights and import quotas.

However, IAS 38 does not cover the following items which are covered by other accounting standards –

  • Financial assets (IAS 32)

  • Exploration and evaluation assets (IFRS 6)

  • Intangible assets arising from insurance contracts issued by insurance companies

  • Intangibles held for sales (IFRS 5)

  • Deferred tax assets (IAS 12)

  • Lease assets (IAS 17)

  • Assets arising from employee benefits (IAS 19)

  • Goodwill (IFRS 3)

In next section, I share to you three critical attributes of an intangible asset which is the core concept in IAS 38.

Three critical attributes

As stated above, intangible asset is identifiable when it is separable. The next question is what is an asset?

An asset is a resource that is controlled by the entity as a result of past events and from which future economic benefits are expected.

From this, we have three critical attributes in determining intangible asset –

  • Identifiability

  • Control

  • Future economic benefits

An intangible asset is identifiable when it is separable or it is arose from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.

Control refers to an entity controls an asset if it has the power to obtain the future economic benefits flowing from the underlying resource and to restrict the access of others to those benefits.

Future economic benefits are revenue, cost savings or other benefits result from the use of an intangible asset by the entity.

IAS 38 Intangible assets - Examples of Intangible Assets
IAS 38 Intangible assets - Examples of Intangible Assets

Recognition of intangible assets

Under IAS 38.21, it puts down recognition criteria for intangible assets –

An entity is required to recognise an intangible asset, whether purchased or self-created (at cost) if, and only if:

  • It is probable that the future economic benefits that are attributable to the asset will flow to the entity; and

  • The cost of the asset can be measured reliably.

Both criteria of an item has to be met in order to recognised as intangible asset. They apply no matter an intangible asset is acquired externally or generated internally.

Separately acquired intangible assets are recognized initially at cost. What does the cost comprise?

The cost comprises purchase price, including import duties and non-refundable purchase taxes, and any directly attributable costs of preparing the asset for its intended use.

Internally generated intangible assets are generated through a process divided into two phases, research phase and development phase. Expenditure incurred from research phase cannot be recognised as intangible asset. Intangible assets arising from the development phase are recognised when the entity can show –

  • Its technical feasibility;

  • Its intention to complete the developments;

  • Its ability to use or sell the intangible asset;

  • How the intangible asset will generate probably future economic benefits;

  • The availability of resources to complete the development; and

  • Its ability to measure the attributable expenditure reliably.

Any expenditure written off during the research or development phase cannot subsequently be capitalised if the project meets the criteria for recognition at a later date.

In addition to separately acquired and internally generated, intangible asset can be acquired in a business combination. If it is the case, both the probability and measurement criterion are always considered to be met.

IAS 38 states all intangible assets are initially measured at cost.

Subsequent measurement

An entity must choose either the cost model or the revaluation model for each class of intangible asset for subsequent measurement. It is important to note that the measurement model applies on all intangible assets in one asset class.

After initial recognition, intangible assets should be carried at cost les accumulated amortisation and impairment losses. It is the principle of cost model.

Revaluation model means intangible assets can be carried at a revalued amount (based on fair value) less any subsequent amortisation and impairment. It is applicable only if fair value can be determined by reference to an active market. Examples where the active markets might exist include production quotas, fishing permits or taxi licenses.

The disclosure requirement is revaluation increases are recognised in other comprehensive income and accumulated in the “revaluation surplus” within equity.

Classification of intangible assets based on useful life

Based on useful life, intangible assets are classified as –

  1. Indefinite life;

  2. Finite life.

The features of indefinite useful life intangible assets are –

  • No foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity;

  • Not amortised;

  • Tested annually for impairment and whenever there is an indication of impairment.

On the other hand, the features of finite useful life intangible assets are –

  • Have a limited period of benefit to the entity;

  • Amortisation is carried out on a systematic basis over the useful life of the intangible asset;

  • Considered for impairment when there is an indication that the asset has been impaired.

Intangible assets are derecognised under two situations, the first one is disposal and the next is no future economic benefits are expected from its use or disposal.


In this part, I would like to describe what are required to disclose for intangible assets in financial statements.

The statements must disclose, for each class of intangible asset, and distinguishing between internally generated intangible assets and other intangible assets:

  • Accounting policy including useful lives, amortisation rates used and amortisation methods (for finite useful lives);

  • The gross carrying amount and any accumulated amortisation;

  • The line items(s) of the income statement in which any amortisation of intangible assets is included;

  • For intangible asset with indefinite useful life, a description of the factor(s) that played a significant role must be provided;

  • A description, the carrying amount and remaining amortisation period of intangible assets if it is material;

  • Certain special disclosures about intangible assets acquired by way of government grants;

  • Information about intangible assets whose title is restricted;

  • Contractual commitments to acquire intangible assets;

  • Intangible assets carried at revalued amounts;

  • The amount of research and development expenditure recognised as an expense in the current period.

Here is an example showing the disclosure in GlaxoSmithKline plc, an UK listed public company, 2018 financial statements.

Extracted GSK Consolidated Balance Sheet as at 31 December 2018
Extracted GSK Consolidated Balance Sheet as at 31 December 2018

GSK 2018 Annual Report - Notes on Financial Statements about Intangible Assets
GSK 2018 Annual Report - Notes on Financial Statements about Intangible Assets

GSK 2018 Annual Report - Notes on Financial Statements about Intangible Assets
GSK 2018 Annual Report - Notes on Financial Statements about Intangible Assets

GSK 2018 Annual Report - Notes on Financial Statements about Intangible Assets
GSK 2018 Annual Report - Notes on Financial Statements about Intangible Assets

ACCA SBR September 2018

From the published ACCA SBR exam papers, I find a question in September 2018 was about intangible assets. For requirement a in question 3, it is divided into three parts –

ACCA SBR September 2018 Q3a
ACCA SBR September 2018 Q3a

In part (i), it is a simple requirement which is asking about IAS 38, existing Conceptual Framework and Conceptual Framework ED recognition criteria.

Part (ii) and (iii) are application of your knowledge into the scenario. Part (ii) asked whether recognition criteria were met and reclassification of R&D. Part (iii) asked the proceeds received from the sale of the development project can be treated as revenue under IFRS 15.

Total marks for Question 3a is 15. Out of 15 marks, 9 marks are from the application of your knowledge in the scenario. Only 6 marks are about discussion of the standards.

Let’s move on to Question 3b.

ACCA SBR September 2018 Q3b
ACCA SBR September 2018 Q3b

Question 3b is divided into two parts. It is an interesting question as you should answer it from an investor’s perspective.

For part (i) of Q3b, you need to know the accounting treatment of intangible assets acquired from business combination, cost or revaluation model and development expenditure capitalised (or recognition) conditions.

In part (ii), it tested your understanding in Integrated Reporting <IR>.


In this article, I share to you IAS 38 Intangible assets and how it was in ACCA SBR exam from a past paper question chosen.

To study accounting standards, you are suggested to understand principle first, for example, how to recognize, what is the accounting treatment if not recognize, and disclosure requirements.

Then, you should check with listed company’s report and read what is done in the real world.

Next, you read through ACCA SBR Specimen and past exam paper on any questions relevant to the topic.

Last but not the least, reviewing what you did against the suggested answers so that you know what you should improve.

I hope the information in this article could help you in preparing SBR exam. Just let me know if you have any questions by sending mail to

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