Outliers Professionals LtdOutliersProfessionals · Ltd
Knowledge Centre · IFRS

IAS 38

Intangible Assets

IAS 38 prescribes the accounting for intangible assets not dealt with specifically in another Standard, requiring recognition only when an item is identifiable, controlled by the entity, expected to generate future economic benefits, and reliably measurable, with specific rules for internally generated intangibles including a strict prohibition on recognising internally generated brands and a research/development split for internal projects. [S1]

Effective 2005-03-31Related: IAS 1 · IAS 8 · IAS 21 · IAS 36

Overview

An intangible asset is an identifiable non-monetary asset without physical substance. [S1] Identifiability requires the asset to either be separable (capable of being sold, transferred, licensed or rented, individually or together with a related contract) or to arise from contractual or other legal rights, whether or not those rights are themselves separable. Recognition additionally requires control (the power to obtain future economic benefits and restrict others' access to them) and a probable flow of future economic benefits, measured reliably. [S2]

Why it matters

For technology, media, and brand-driven businesses, intangible assets and the judgement calls around them (what counts as development versus research, what software cost is capitalisable, how long a customer relationship or licence should be amortised) can materially shape reported profit and asset values. Getting the research/development line wrong either overstates assets by capitalising cost that should have been expensed, or understates them by expensing genuine development investment too early.

Scope

Applies to all intangible assets except those specifically addressed by another Standard: financial assets, exploration and evaluation assets (IFRS 6), expenditure on development and extraction of minerals, oil, gas and similar non-regenerative resources, intangible assets held for sale (IFRS 5), and goodwill acquired in a business combination (IFRS 3). Internally generated goodwill is within IAS 38's scope conceptually but is explicitly prohibited from recognition because it is not an identifiable resource controlled by the entity that can be measured reliably at cost.

Key definitions

term
Intangible asset
definition
An identifiable non-monetary asset without physical substance.
term
Identifiability
definition
An asset is identifiable if it is separable, or arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity.
term
Research
definition
Original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding.
term
Development
definition
The application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services, before the start of commercial production or use.
term
Amortisation
definition
The systematic allocation of the depreciable amount of an intangible asset with a finite useful life over its useful life.
term
Active market
definition
A market in which items traded are homogeneous, willing buyers and sellers can normally be found at any time, and prices are available to the public — rarely present for intangible assets other than certain licences or quotas.

Recognition

An intangible asset is recognised only if it is probable that expected future economic benefits attributable to the asset will flow to the entity, and its cost can be measured reliably. Expenditure on an internally generated intangible is split into a research phase (always expensed as incurred, since an entity cannot demonstrate an intangible asset exists that will generate probable future economic benefits) and a development phase (capitalised only if the entity can demonstrate all of: technical feasibility of completing the asset; intention to complete and use or sell it; ability to use or sell it; how it will generate probable future economic benefits; availability of adequate technical, financial and other resources to complete it; and the ability to reliably measure the expenditure attributable to it during development). Internally generated brands, mastheads, publishing titles, customer lists and similar items are never recognised as intangible assets because expenditure on them cannot be distinguished from the cost of developing the business as a whole.

Initial measurement

An intangible asset is initially measured at cost. For a separately acquired intangible, cost comprises the purchase price (including import duties and non-refundable taxes, net of trade discounts and rebates) plus directly attributable costs of preparing the asset for its intended use. For an intangible acquired in a business combination, cost is its fair value at the acquisition date, recognised separately from goodwill if it meets the identifiability criteria, even if the acquiree had not recognised it as an asset. For an internally generated intangible, cost comprises only expenditure incurred from the date the recognition criteria are first met, and expenditure already recognised as an expense in previous financial statements is never reinstated as part of the cost of the asset at a later date.

Subsequent measurement

An entity chooses, as an accounting policy applied to a class of intangible assets, either the cost model (cost less accumulated amortisation and impairment) or the revaluation model (fair value at the date of revaluation less subsequent accumulated amortisation and impairment) — but the revaluation model can only be applied if fair value can be determined by reference to an active market, which rarely exists for intangibles other than certain transferable licences or quotas. An intangible asset with a finite useful life is amortised over that life on a basis reflecting the pattern of consumption of its economic benefits (straight-line if that pattern cannot be determined reliably), and tested for impairment under IAS 36 when indicators exist. An intangible asset with an indefinite useful life is not amortised but is tested for impairment annually and whenever there is an indication it may be impaired, and its useful life assessment is reviewed each period to confirm indefinite treatment remains appropriate.

Presentation

Intangible assets are presented as non-current assets, with a reconciliation of the carrying amount at the beginning and end of the period shown by class (additions, internally developed amounts, acquisitions through business combinations, disposals, amortisation, impairment losses and reversals, and revaluation movements), distinguishing internally generated intangibles from others and finite-life from indefinite-life assets. Any revaluation surplus is presented in other comprehensive income and accumulated as a separate component of equity, following the same mechanics as IAS 16.

Disclosure checklist

  • For each class of intangible asset: whether useful lives are indefinite or finite, and if finite, the useful lives or amortisation rates used.
  • The amortisation methods used for finite-life intangible assets.
  • The gross carrying amount and accumulated amortisation (aggregated with accumulated impairment losses) at the beginning and end of the period.
  • The line item(s) in the statement of comprehensive income in which amortisation is included.
  • A reconciliation of the carrying amount at the beginning and end of the period, including additions (distinguishing internal development, separate acquisition, and business combinations), disposals, impairment losses/reversals, amortisation, and other movements.
  • The aggregate amount of research and development expenditure recognised as an expense during the period.
  • For any intangible asset with an indefinite useful life, its carrying amount and the reasons supporting the indefinite-life assessment.

Practical treatment

The most consequential practical judgement is drawing the research/development line for internally generated software and technology, and documenting each of the six development-capitalisation criteria contemporaneously rather than retrospectively at year-end. In practice, the point at which a software project moves from exploratory research to development is often when a technical specification is approved and management commits resources to building a specific, feasible product — costs before that point (broad feasibility studies, exploratory prototyping) are research and expensed; costs after it (coding to a defined spec, testing, configuration for planned use) may be development and capitalised if all six criteria are met and documented. Ongoing maintenance, bug fixes, and minor enhancements after the software is available for use are expensed as incurred, not capitalised as further development. See nigeria_notes for practical guidance for Nigerian technology and digital-product businesses.

Common mistakes

  • Capitalising an internally generated brand, customer list, or similar item, which IAS 38 explicitly prohibits regardless of how confident management is in its future value.
  • Capitalising research-phase software costs (broad exploratory work, feasibility studies) as if they were development costs.
  • Failing to document, contemporaneously, how all six development-capitalisation criteria were met, and instead asserting capitalisation only in hindsight once the product proves successful.
  • Continuing to capitalise costs after the software or product is available for its intended use, when subsequent costs are usually maintenance and should be expensed.
  • Applying the revaluation model to intangible assets without a genuine active market to determine fair value.
  • Treating every acquired customer contract or relationship in a business combination as automatically meeting the separate-recognition criteria without assessing identifiability.

CFO checklist

  • Maintain contemporaneous documentation of the research/development transition point and the six development-capitalisation criteria for every internally developed software or product project.
  • Confirm capitalisation stops once an asset is available for its intended use, with subsequent maintenance and minor enhancement costs expensed.
  • Review the useful-life classification (finite versus indefinite) for each intangible asset class annually, with a documented rationale.
  • Test indefinite-life intangibles (and any not yet in use) for impairment annually, independent of whether an indicator is observed.
  • Reconcile capitalised development costs to the R&D expense disclosed for tax deduction purposes, since accounting capitalisation and tax deductibility follow different rules and caps.
  • Confirm intellectual property (trademarks, patents, licences) acquired or registered is supported by evidence of legal protection and its associated registration costs are appropriately capitalised or expensed.

FAQs

q
We spent ₦50,000,000 building a new mobile banking app — can we capitalise all of it?
a
Only the development-phase costs incurred after the entity can demonstrate all six IAS 38 development criteria (technical feasibility, intention and ability to complete and use/sell it, how it generates future benefits, resource availability, and reliable cost measurement) are capitalised; exploratory research-phase costs before that point are expensed, and the split must be evidenced, not asserted after the fact.
q
Can we recognise our own brand name as an intangible asset because it's clearly valuable?
a
No. IAS 38 explicitly prohibits recognising internally generated brands, mastheads, publishing titles, customer lists and similar items as assets, because the expenditure to internally generate them cannot be distinguished from the cost of developing the business as a whole. A brand acquired from a third party, however, can be recognised at its acquisition cost.
q
Do we amortise a perpetual software licence with no expiry date?
a
Only if its useful life is genuinely indefinite based on all relevant factors (not just the absence of a contractual expiry date) should it be treated as non-amortised, subject to annual impairment testing; if the entity expects to replace or stop using it within a foreseeable period, it has a finite useful life and should be amortised over that period.

Nigeria application notes

Regulatory overlay

IAS 38 applies in full to Nigerian public interest entities under the FRCN Act 2011 mandate. [S3] Legal protection for intangible assets such as trademarks, patents and industrial designs in Nigeria is administered by the Trademarks, Patents and Designs Registry under the Federal Ministry of Industry, Trade and Investment; registration itself does not create the accounting asset (that follows IAS 38's recognition criteria), but it is often the evidential basis supporting an intangible asset's identifiability and legal protection. [S4]

Tax interaction (Nigeria)

Trademark and copyright registration in Nigeria involves modest statutory fees (illustratively in the tens of thousands of naira for straightforward local trademark and copyright filings, though costs vary by category and complexity) plus professional/agent fees; these registration costs are directly attributable acquisition costs for a purchased or registered intangible right and are generally capitalisable, subject to the entity's own capitalisation policy threshold. [S4][S5] For tax purposes, research and development expenditure deducted in computing taxable profits is capped at 5% of the company's turnover for the year under the Nigeria Tax Act 2025, and if the R&D outcome is later sold or commercially transferred, the proceeds are taxed as chargeable gains — this tax cap and treatment is separate from, and should not be confused with, the accounting capitalisation of development costs under IAS 38, which follows its own six-criteria test with no percentage-of-turnover cap. [S6][S_TAX1] Nigerian rates, thresholds, exemptions, incentives and filing rules referenced in this file (including CIT, VAT, capital gains tax and the small-company threshold) should be independently verified against the Nigeria Tax Act 2025, the Nigeria Tax Administration Act 2025, and current NRS practice in force at the reporting or filing date, since thresholds, rates and reliefs are subject to periodic revision and to sector- or entity-specific qualifying conditions. This file does not constitute legal or tax advice. [S_TAX1][S_TAX2]

FX considerations

Intangible assets acquired from foreign licensors (software licences, franchise rights, imported technology) are translated at the spot rate at the transaction date and, as non-monetary items carried at historical cost, are not subsequently retranslated; ongoing licence or royalty fees payable in foreign currency, by contrast, are monetary liabilities and are retranslated at each closing rate, so naira volatility affects the liability even though it does not affect the capitalised asset cost.

SME practical note

Nigerian technology start-ups and digital-product businesses frequently want to capitalise the full cost of building their app or platform from day one; Outliers recommends walking clients through the research/development distinction early, since most pre-product-market-fit exploratory work is research (expensed), and only clearly scoped, committed build phases after a validated concept typically qualify as development.

Common Nigerian pitfalls

  • Capitalising the entire cost of an app or platform build from project inception, without separating research-phase exploratory work from development-phase costs.
  • Treating trademark or patent registration fees paid to the Trademarks, Patents and Designs Registry as automatically capitalisable without assessing whether the asset itself meets IAS 38's recognition criteria.
  • Confusing the tax R&D deduction cap (5% of turnover) with the accounting development-cost capitalisation test, which has no such percentage cap.
  • Continuing to capitalise app development costs after the product has launched and moved into a maintenance/bug-fix phase.

FRC pronouncements

No FRCN pronouncement specific to intangible asset accounting under IAS 38 itself has been identified; the relevant FRCN context is its overarching mandate to promote IFRS compliance. [S3]

Worked examples

Research versus development split for an internally developed app

A Nigerian fintech spends ₦40,000,000 over the year on a new savings app. ₦15,000,000 was spent on early-stage exploratory work (market research, evaluating alternative technical approaches) before management approved a technical specification and committed resources to build. The remaining ₦25,000,000 was spent after that approval, on coding, testing and configuration against the approved specification, and management can demonstrate all six IAS 38 development criteria are met for this phase.

Facts

Workings

Research-phase costs of 15,000,000 are expensed as incurred, since at that stage the entity cannot demonstrate an intangible asset exists that will generate probable future economic benefits.

Development-phase costs of 25,000,000 are capitalised as an intangible asset (software under development), since management can demonstrate all six development criteria.

Journal entries

Expense the research-phase costs of the app project as incurred.

AccountDr (₦)Cr (₦)
Research expense (profit or loss)15,000,000
Cash / accrued costs15,000,000

Capitalise the development-phase costs of the app project as an intangible asset.

AccountDr (₦)Cr (₦)
Intangible asset – software under development25,000,000
Cash / accrued costs25,000,000

Acquisition and amortisation of a purchased trademark

A company acquires a competitor's trademark for ₦12,000,000, paying ₦500,000 in registration and legal fees to record the transfer with the Trademarks, Patents and Designs Registry. The trademark has a remaining legal protection period of 10 years, and management assesses its useful life as finite at 10 years, matching that period, with no expectation of indefinite renewal being commercially certain.

Facts

Workings

Total cost to capitalise: 12,000,000 + 500,000 = 12,500,000

Annual amortisation (straight-line over 10 years, assuming no reliable pattern of benefit consumption other than time): 12,500,000 / 10 = 1,250,000 per year

Journal entries

Recognise the purchased trademark at cost, including directly attributable registration and legal fees.

AccountDr (₦)Cr (₦)
Intangible asset – trademark12,500,000
Cash12,500,000

Recognise the first year's amortisation of the trademark.

AccountDr (₦)Cr (₦)
Amortisation expense (profit or loss)1,250,000
Accumulated amortisation – trademark1,250,000

Sources & citations

  1. [S1]IAS 38 Intangible Assets — IFRS Foundationaccessed 2026-07-18
  2. [S2]Recognition and Cost of Intangible Assets (IAS 38) — IFRS Communityaccessed 2026-07-18
  3. [S3]IFRS - Use of IFRS Standards by jurisdiction: Nigeria — IFRS Foundationaccessed 2026-07-18
  4. [S4]Trademark And Other Intellectual Property Rights Protection Nigeria — Mondaqaccessed 2026-07-18
  5. [S5]What You Need to Know About Copyright and Trademark Registration in Nigeria — Goidaraaccessed 2026-07-18
  6. [S6]Nigeria - Corporate - Deductions — PwC Worldwide Tax Summariesaccessed 2026-07-18
  7. [S_TAX1]Nigeria Tax Act, 2025 has been signed – highlights — EY Globalaccessed 2026-07-18
  8. [S_TAX2]Nigeria's 2025 Tax Reform Acts Explained: Key Changes — Baker Tilly Nigeriaaccessed 2026-07-18
Last reviewed 2026-07-18 · Reviewer: Rafiu Olawuyi, FCA (Author / Technical Reviewer)