Intangible Assets (IAS38) – Key characteristics

Intangible Assets are similar to tangible assets as they contribute to the entity’s operations. However, Intangible assets IAS 38 are non-monetary assets without physical substance like other assets. Intangible assets can demonstrate special characteristics such as control and economic benefits.

Key Characteristics of intangible assets are

  • Identifiability – An intangible asset must be identifiable to distinguish it from goodwill, i.e. it can be either separable or divided from the entity, licensed, rented or exchanged.
  • Control – Intangible assets must be controlled by the entity, i.e. should have the power to obtain the future economic benefits flow to the entity.
  • Future economic benefits – Entity must provide future economic benefits in many ways, such as Revenue from the sale of the products, cost-saving, etc.

Intangible assets may be acquired from other entities or can be generated internally. Initial cost recognition of intangible can be measured as follows:

Purchase Price (IAS 38) + directly attributable costs (IAS 38)

  1. Purchase Price includes
  • Import duties & non-refundable purchase taxes
  1. Directly attributable costs include
  • Costs of employee benefits (IAS 19) arising directly from bringing the assets to its working condition
  • Professional fee arising directly from bringing the assets to working assets
  • Cost of testing the asset.

Directly attributable costs exclude

  • Cost of introducing a new product or services
  • Cost of conducting business in the new location
  • Administration & overhead costs
  • Costs incurred while an asset capable of operating
  • Initial operating Losses

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check our other blog about Why Intangible Assets (IAS38) matter?