Intangible Assets
Intangible Assets
An intangible asset is not “anything valuable without physical form.” It must be identifiable, controlled and capable of generating future economic benefits, with the applicable recognition criteria met.
Northstar’s customer app
| Phase | Expenditure | Treatment under the stated IAS 38 facts |
|---|---|---|
| Explore battery-routing ideas | £40,000 | Research expense |
| Build alternatives before feasibility is demonstrated | £25,000 | Expense |
| Develop after all six criteria are documented | £90,000 | Capitalise from that date |
| Train sales staff | £8,000 | Expense |
| Launch advertising | £12,000 | Expense |
Only £90,000 is capitalised. Earlier expenditure is not reinstated once the project passes the gate.
The development gate
Capitalise internally generated development expenditure only when Northstar can demonstrate all six:
- technical feasibility of completion;
- intention to complete;
- ability to use or sell;
- probable future economic benefits;
- adequate technical, financial and other resources;
- reliable measurement of attributable expenditure.
If research and development phases cannot be distinguished, treat the expenditure as research.
Purchased, internal and goodwill are different
| Item | Introductory treatment |
|---|---|
| Separately purchased patent or software | Recognise initially at cost if within scope |
| Qualifying internal development | Capitalise only from the demonstrated gate |
| Internal research, brands, mastheads, customer lists or internally generated goodwill | Expense under IAS 38 restrictions |
| Identifiable intangible acquired in a business combination | Recognise separately from goodwill when requirements are met |
| Goodwill from a business combination | Separate impairment model; not an internally generated asset |
After recognition
- Finite life: amortise over the estimated useful life and test for impairment indicators.
- Indefinite life: do not amortise; test annually for impairment and reconsider the indefinite-life assessment.
- Goodwill: test under the applicable cash-generating-unit/reporting-unit model; impairment is not reversed under IFRS or US GAAP.
“Indefinite” does not mean permanent. It means no foreseeable limit to the period of net cash inflows based on current analysis.
Caution: pharmaceutical and high-uncertainty projects
Late-stage work is not automatically capitalised under IFRS. Regulatory approval, technical feasibility and probable benefits may remain too uncertain. The entity must demonstrate every criterion; the stage name alone is not evidence.
US GAAP boundary
US GAAP generally expenses research and development as incurred, with topic-specific exceptions such as certain software costs. A company comparison must adjust for the applicable type of development and framework, not simply label one policy conservative.
Current research frontier
The IASB is reviewing IAS 38 and, in 2026, is exploring user needs and newer forms of intangibles. This is an active project, not a change to current recognition requirements.
Quick check
Northstar demonstrates all six criteria on 1 July. It spent £50,000 before that date and £70,000 after it. How much is capitalised under the simplified facts?