Ind AS 38- Intangible Assets

An intangible asset is an asset that does not have a physical existence and cannot be seen or touched but its existence can easily be felt. For example, Goodwill, Patent, Copyright, Formula, License, Recipe, Mastheads etc. The valuation of such an asset is complex and has to be carefully dealt with. In this regard, the Ind AS 38 prescribes the principles for measurement, valuation, recognition and the accounting treatment for intangible assets that are not dealt with specifically in another Ind AS. However, the standard mandates an entity to identify and record an intangible asset if and only if certain conditions are met. The standard also elaborates how to ascertain the carrying value of intangible assets and requires specified disclosures in relation to intangible assets.

Definition
An Intangible asset is an identifiable non-monetary asset which does not have a physical substance controlled by the entity, from which future economic benefits are expected to arise towards the entity.

Scope
The standard applies to all intangible assets except the following:

financial assets
exploration and evaluation assets
intangible assets arising as a result of insurance contracts issued by insurance companies
amount spent on the development and extraction of minerals, oil, natural gas, and similar resources
intangible assets specifically covered by another Ind AS, such as:
- intangible assets held for sale
- deferred tax assets and lease assets
- assets arising from employee benefits plan
- goodwill acquired under business combination.

Recognition criteria
An intangible asset (at cost) is recognized if, and only if both of the below conditions are met:

It is probable that the future economic benefits that are attributable to the asset will arise to the entity; and
The cost of such an asset can be calculated reliably

Other Important aspects related to recognition of an Intangible Asset

If an intangible item does not meet both the definition and the recognition criteria as an intangible asset, the Ind AS 38 states that the amount incurred on such item should be accounted as an expense when it is incurred.
If asset is acquired separately, then its recognition shall be done at the acquisition cost.
If an asset is acquired in a business combination or through a government grant, then its recognition shall be done at the fair value.
If asset is generated internally through the efforts of an entity, then the amount incurred in development phase shall be its recognition value.

Research and Development Costs

All the research cost are charged to expense.
Development costs can be capitalized only if all of the below facts are disclosed by the entity:
- Technical and commercial feasibility of the asset for use or sale have been established;
- Intent to complete the intangible asset and use or dispose it;
- Ability to use or sell the IA;
- How the intangible asset will produce probable future economic benefits;
- Availability of sufficient financial, technical, and other resources to complete the development and to utilize or dispose the intangible asset; and
- Ability to measure reliably the expenditure attributable to the IA during its development.
If an entity cannot distinguish the research phase from the development phase, the entity treats the expenditure for that project as if it were incurred in the research phase only.

Useful life
It is important to know that the accounting for an intangible asset is based on its useful life. The useful life and accounting of an intangible asset can be either of the two mentioned below:

Intangible asset having a finite useful life.

The depreciable amount of an intangible asset with a finite useful life should be allocated on an organized and regular basis over its useful life considering the following facts:

The method of amortization should reflect the pattern of benefits being derived
If the pattern of benefits cannot be significantly determined, then amortize the intangible asset by the equal instalment method
The amount of amortization charge is recognized in profit or loss unless this or any another standard allows or requires it to be included in the carrying value of another asset.
Intangible asset having an indefinite useful life.

An intangible asset with an indefinite useful life should not be amortized.

An entity should test an Intangible asset with an indefinite useful life for impairment by contrasting and comparing its recoverable value with its carrying value:

Annually, and
When there is an indication of the fact that the intangible asset may be impaired.

Revaluation of an Intangible Asset

The increase in carrying value to the extent of amount of previous revaluation decrease shall be recognized in statement of profit & loss and the balance amount of revaluation to other comprehensive income statement.
The decrease in carrying value to the extent of amount of previous revaluation increase shall be recognized to the comprehensive income and the balance amount of revaluation to the statement of profit & loss.

Retirement & Disposal
An intangible asset shall be derecognized when at least one of the following conditions is met:

Disposal of the intangible asset; or
When there is an indication of the fact that no further future economic benefits could be generated from its use or disposal.

Disclosure
For each class of intangible asset, an entity is required to disclose following:

Useful life or rate of amortization;
Method of amortization;
Gross carrying value and amount of accumulated amortization;
Line items of statement of profit & loss in which amortization is included;
Reconciliation statement of the carrying value at the beginning and the end of the period;
Basis for ascertainig that an intangible has an indefinite life;
Description and carrying amount of individual material intangible asset;
Specific disclosures about intangible assets that are acquired by way of government grants;
Information about those intangible assets whose title is restricted;
Contractual commitments to acquire intangible assets;
Intangible assets carried at revalued amounts; and
The amount of research and development expenditure recognized as an expense in the current period.

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