Recognition criteria for intangible assets according to IAS 38

Recognition criteria for intangible assets according to IAS 38.

An intangible asset is an identifiable non-monetary asset without physical substance.

An intangible asset should be recognised if:

  • It is probable that the economic benefits associated with the asset will flow to the entity; and
  • The cost of an asset can be measured reliably.

If these criteria are not met, any relevant expenditure should be expensed.



IAS 38 provides detailed guidance in respect of the application of the recognition criteria to specific cases of intangible asset acquisition.
Those specific cases of intangible asset acquisition are:

  • The asset purchased separately;
  • internally generated intangible assets;
  • Assets purchased as part of the group.

For assets purchased separately:

  • If the asset was purchased separately, recognize it as an intangible asset at cost provided it meets the definition of the intangible asset.
  • Cost is deemed to include any directly attributable cost of preparing the asset for its intended use.
  • If the asset is acquired for a free or nominal sum by way of the government grant, for example, a radio license, it may be recognized at fair value (under IAS 20 accounting for government grants and disclosure of government assistance). If this option is not taken, it must be recognized at cost, including directly attributable expenditure.

For assets purchased as part of the group of assets (for example, the takeover of businesses including one or more intangible assets)



  • If purchased as part of business, capitalize the intangible at fair value if it can be reliably measured on initial recognition. If not, ignore the asset and include its value within goodwill.
  • The cost of assets acquired under exchange is measured as the fair value of the asset given up in return.

For internally generated intangible assets:

  • Internally generated goodwill should never be recognized.
  • Internally generated brands, titles, customer lists, and similar items are not recognized as intangible assets. This is because under IAS 38 they are deemed indistinguishable from the cost of developing the business as a whole.
  • Any cost involved in research or from the research phase of an internal project must be expensed.
  • The cost incurred in developing an intangible asset should be capitalized only if all the following criteria are met:
  • It is probable that the product being developed will generate future economic benefits.
  • There is intention to complete and use or sell the developed intangible asset;
  • Resources are available to complete the project of developing the intangible asset;
  • The entity has the ability to use or sell the intangible asset;
  • There is technical feasibility of the product being developed;
  • Development expenditure on intangible assets can be measured reliably.



  • Computer software should generally be capitalized at cost, but the operating systems should be included with the hardware cost within the property, plant, and equipment, not within intangibles. This is because the equipment is generally inoperable without the operating system.
  • Any expenditure initially is written off as an expense may not be subsequently capitalized under any circumstances. However, an intangible asset written off due to changes in circumstances may be reinstated if those circumstances reverse.

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