Intangible Assets


IAS 38 sets out the accounting treatment to be followed for Intangibles in so far as not covered by other International Accounting Standards. The standard lays down the criteria to be met before an entity recognises an Intangible asset.


 Amortisation is the systematic allocation of the depreciable amount of an intangible asset over its useful life.

Development is 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.

Research is original and planned investigation undertaken with the prospect of gaining scientific or technical knowledge and understanding.

An Intangible asset is an identifiable non-monetary asset without physical substance. Examples of intangible assets include patents, trademarks, licences, copyrights, motion picture films and video recordings.

Note:  Whilst the device on which the film or video has been recorded is tangible, the art itself is not tangible.

 Non-monetary assets that have no physical substance are held for use in the production or supply of goods or services or for rental to others or for administrative purposes.



An intangible asset should be recognised when it complies with the definition of an intangible asset and meets the recognition criteria for an asset i.e. probable that future economic benefits will flow to the entity and the cost of the asset can be measured reliably.

Initial Measurement

Intangible assets should be measured at cost initially.


Internally generated goodwill should not be recognised.  It is difficult to identify separately and cannot be measured reliably. Other internally generated assets may be recognised but it is difficult to identify whether there is an identifiable asset that will generate probable future economic benefits and to determine the cost of the asset reliably. An entity must classify expenditure into a research phase and a development phase.  In the event that expenditure cannot be distinguished it should be regarded as research expenditure.            


Intangible assets may be acquired in a number of different ways:

Separately – For example the purchase of computer software

As part of a business combination – H Limited bought 100% of S Limited for RWF2m.  The net assets of S Limited at the date of acquisition were RWF1.7m.  The intangible asset of Goodwill of RWF0.3m arises.

By way of a government grant e.g. mobile phone operating licence.

By an exchange of assets



Development expenditure should be recognised as an intangible asset if the entity can demonstrate all of the following criteria:

  • The technical feasibility of completing the intangible asset
  • The intention to complete and use or sell it
  • The ability to use or sell the intangible asset
  • How the intangible asset will generate probable future economic benefits
  • The availability of adequate technical financial and other resources to complete the development and use or sale of the intangible asset
  • The ability to measure expenditure attributable to the intangible asset.

Examples of development expenditure activities include the design, construction and testing of new or improved materials, devices, products, processes, systems or services, the design of tools, jigs, moulds and dies involving new technology.


Expenditure on research should be recognised as an expense in the Statement of Comprehensive Income  when it is incurred.

Examples of research expenditure include amounts spent on activities aimed at obtaining new knowledge, the search for alternatives for materials, devices, products, processes, systems.

The following costs would probably be treated as an expense in the Statement of Comprehensive Income : research costs, customer lists and publishing titles that are internally generated, advertising and related costs.


The depreciable amount of an intangible asset should be allocated on a systematic basis over the best estimate of its useful life.

There is a presumption that the useful life will not exceed 20 years unless there is persuasive evidence to the contrary, in which case the intangible asset is amortised over a longer period.


The financial statements should disclose:

  • the accounting policies adopted for intangible assets, the amortisation method used and the useful life or the amortisation rate used;
  • the gross carrying amount and the accumulated amortisation at the start and end of the year including movements that have arisen during the year;
  • the line item of the Statement of Comprehensive Income in which the amortisation is included;

the total cost of research and development that has been recognised as an expense in the Statement of Comprehensive Income .

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