IAS 38 Intangible Assets

IAS 38 Intangible Assets – Recognising and Measuring Non-Physical Value

1️⃣ Introduction: Understanding IAS 38 Intangible Assets

IAS 38 Intangible Assets sets the rules for identifying and measuring assets that have no physical form but create value.
In Singapore’s digital economy, firms depend on software, brands, and intellectual property. As a result, IAS 38 Intangible Assets helps companies show these investments clearly and consistently, strengthening trust among investors and regulators.

2️⃣ Purpose and Scope

IAS 38 applies to intangible assets that are not covered by other standards such as IAS 12 (Income Taxes) or IFRS 3 (Business Combinations).
An intangible asset is a separable, non-monetary asset without physical substance that brings future benefits.

3️⃣ Recognition Criteria

A company can recognise an intangible asset only when it:

Can be identified (separable or based on legal rights).
Controls the future economic benefits.
Expects probable future inflows.
Can measure the cost reliably.

Therefore, normal spending on staff training, marketing, or goodwill stays as an expense.

4️⃣ Research vs Development Costs

IAS 38 Intangible Assets separates research from development:

Research phase: Record as an expense immediately because future benefits are uncertain.
Development phase: Capitalise costs only when the project is feasible, the intention to complete is clear, future benefits are probable, and costs are measurable.

For example, a Singapore firm that builds its own accounting software capitalises programming and testing costs once success is demonstrated.

5️⃣ Measurement after Recognition

Entities may choose one of two models:

(a) Cost Model – Keep at cost less amortisation and impairment.
(b) Revaluation Model – Revalue to fair value from an active market, then deduct amortisation and impairment.

Because few intangible assets have active markets, most firms use the cost model.

6️⃣ Amortisation and Useful Life

Assets with a finite useful life (such as software licences) are amortised over their benefit period.
Assets with an indefinite life (such as strong brands) are tested for impairment every year under IAS 36 Impairment of Assets.
In addition, companies should review useful lives and methods each year to stay accurate.

IAS 36 Impairment of Assets

7️⃣ Impairment under IAS 38

When market or technology changes reduce expected returns, companies must test for impairment using IAS 36.
Recognising losses early keeps asset values honest and financial statements credible.

8️⃣ Derecognition

A firm removes an intangible asset when it sells it or no longer expects future benefits.
It records any gain or loss in profit or loss. Therefore, maintaining an updated asset register is essential for accuracy.

9️⃣ Disclosure Requirements

IAS 38 Intangible Assets requires clear notes that show:

Useful lives and amortisation rates.
Methods used to amortise.
Opening and closing balances.
Reasons for classifying assets as indefinite.

As a result, stakeholders see how intangible value is tracked and verified.

IAS 37 Provisions, Contingent Liabilities and Contingent Assets

🔟 Example: IAS 38 in Practice

Scenario:
uSafe Accounting Pte. Ltd. develops a custom CRM system for SGD 180 000. The project meets IAS 38 criteria and is amortised over five years.
Two years later, new technology shortens its life to four years.

✅ The company adjusts amortisation prospectively and explains the change in its notes. As a result, readers see timely updates and compliance with IAS 8 and IAS 38 Intangible Assets.

11️⃣ Common Errors

Capitalising advertising or training costs.
Mixing research and development phases.
Ignoring annual impairment reviews.
Forgetting to revise useful life assumptions.

Avoiding these errors keeps the accounts accurate and audits smoother.

12️⃣ Best Practices

✅ Separate research and development expenses clearly.
✅ Update asset registers and impairment tests regularly.
✅ Check market useful life assumptions every year.
✅ Use simple transition words such as therefore, in addition, as a result, and however to improve readability.

Consequently, companies that apply IAS 38 Intangible Assets consistently present innovation investments with clarity and credibility.

Conclusion

IAS 38 Intangible Assets helps businesses recognise and value knowledge-based resources properly. Therefore, by following this standard, Singapore firms strengthen financial reporting quality, enhance trust, and demonstrate sound corporate governance.

Disclaimer: This article is for informational purposes only and does not constitute any professional advice. Feel free to contact us to consult with our professional advisors team for personalized advice and guidance.

Sources: https://www.ifrs.org/issued-standards/list-of-standards/ias-38-intangible-assets/