LATEST AND SIMPLE VERSION OF IND AS 38 As Amended by Companies (Indian Accounting Standards) Second Amendment Rules, 2019

The relevant Accounting Standards relating to Intangible Assets are the following:-

a. INDAS 38

b. IAS 38

c. AS 26.

There is no major difference between INDAS 38 AND IAS 38.So the following details relate to both INDAS 38 and IAS 38.

Statements of Profit and loss and other Comprehensive income, Statement of changes in Equity and Statement of Financial position are the new names of Financial Statements as per IND AS and IAS .

Amortization is like depreciation of PPE. Amortization is applicable in the case of Intangible asset


Intangible asset is an identifiable non- monetary asset without physical substance. Therefore the Intangible asset has the following characteristics:

a. Identifiability

The intangible asset must be separate i.e, it should be capable of being separated from the entity ,and sold/transferred.


i. Licence to operate buses on a route.

ii. Mining rights granted by the Government to a mining Co.

b. As asset controlled by an entity

c. Future economic benefits.

Common Examples of Intangible assets are the following:-

i. Computer software

ii. Copyrights

iii. Patents

iv. Films

v. Client lists

vi. Licences

vii. Franchises

viii. Market share

ix. Mortgage-servicing rights

x. Import quotas

xi. Marketing rights.

II. Initial Recognition and measurement, Subsequent Measurement, Revaluation, Amortization,Useful life, Retirements and disposals and Disclosures are the most important concepts relating to this standard.

III. Initial Recognition and Measurement

The Intangible assets may be acquired through the following modes. Therefore Initial measurement depends upon the mode through which it is acquired by the entity.

a. Separate acquisition

i. At Cost.

Cost includes the following

Purchase price

Less: (i).Trade discounts.

(ii). Rebates

Add: (i). Import duties

(ii).Non-refundable purchase taxes

(iii).Legal fees for purchase contract and recording ownership

(iv).Stamp duty

(v). Deferred consideration at the cash price

(vi). Other directly attributable costs

b. Acquired in Business Combination

i. At Fair value at the acquisition date

c. Government Grant

In some cases an Intangible asset may be acquired free of charge, or for nominal consideration ,by way of a government grant.

a. Entity may choose to recognize the Intangible asset at fair value

b. Otherwise the entity may recognize the intangible asset

i. at a nominal amount(the other treatment as per INDAS 20)

Add: Any expenditure that is directly attributable to preparing the asset for its intended use.

d. Internally Generated Goodwill

Self -generated goodwill is not measured and recognized.

e. Exchange of Asset

Common Valuation —-At fair value.

f. Internally generated Intangible assets other than Goodwill .

At cost.

Cost means Development costs .Following points are important at this juncture.

The process of Intangible Asset generation is classified into

i. Research Phase

ii. Development Phase

Research phase.

No Intangible asset is recognized at this stage. Research costs are recognized as Expenses in the Statement of Profit and loss.

Development Costs

Development costs are added and recognized as Intangible Asset.

They are the following

i.Design cost

ii.Construction cost

iii. Salaries and wages of employees engaged

iv. Testing of pre-production prototypes

v. Design of tools

vi. Jigs

vii. Moulds involving new technology

viii. Register a legal right

ix. Amortization of patents and licenses that are used to generate the intangible asset

x. Other coding costs after establishment of technological feasibility

xi. Other testing costs after establishment of technological feasibility

xii. Cost of producing product masters for training materials

xiii. Other directly attributable costs to the generation of Intangible asset.

IV. Subsequent measurement

It may be either

i. At Cost Model.


ii. At Revaluation Model.

Cost Model

At cost less accumulated amortization less accumulated impairment loss .

Revaluation Model.

At Fair value

Less accumulated amortization less accumulated impairment loss.

Fair value is determined by referring to active market.

The revaluation model does not allow:

a. the revaluation of intangible assets that have not previously been recognized as asset or

b.the initial recognition of intangible assets at amount other than cost

Also,the revaluation model may be applied to an intangible asset that was received by way of a Government Grant and recognized at a nominal amount

IV. Treatment of Revaluation .

i.Revaluation Increase

Increase should be shown in

a. Other Comprehensive Income


i. In Statement of Financial Position under the head equity

ii. However ,the increase shall be recognized in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognized in profit or loss.

iii. Revaluation decrease should be shown as expense in profit and loss Account

iv. When a revalued asset is disposed of, any revaluation surplus may be transferred directly to retained earnings .

V. Amortization

Process of providing depreciation is called amortization in case of Intangible assets

i. Finite useful life

Amortization =Accounted value − Residual value ÷Useful life.

Factors considered in estimating useful life

– Expected usage

– Product life cycle

– Technical, commercial or other type of obsolescence

– Stability of the industry

– Legal or similar other limits on the use of the asset.

Amortization charges should be in profit and loss

Straight line method may be followed.

ii.Infinite useful life.

i.Not to be amortized .

ii.Impairment testing compulsory at least annually.

VI.Retirement and disposals .

An intangible asset shall be derecognized

i.on disposal

ii.When no future economic benefits are expected from use or disposal.

  • When the Intangible asset is to be derecognized, a gain or loss on disposal is to be calculated by comparing the difference between:

– Carrying value on date of disposal

And Disposal proceeds

  • If disposal proceeds > carrying value; profit
  • If disposal proceeds < carrying value; loss

It shall be recognized in profit and loss when the asset is derecognized (unless INDAS 116 requires otherwise on a sale and leaseback).

Gains shall not be classified as revenue.

VIII. Web site Costs

It is an Intangible Asset as per Appendix A of IND AS 38

IX. Disclosures

Disclosures are to be under the following headings.

i.General Disclosure

ii. Intangible Asset measured after recognition using revaluation model

iii. Research and development expenditure

iv. Other Information .

X. Difference between AS 26 and INDAS 38

AS- 26 IND AS-38
Definition requires the assets to be used in production or supply of goods or services or for rentals to others No such specific requirement
 Separability not a pre-condition for identifiability Recognition criteria include Separability as a pre-condition
 Silent on subsequent expenditure incurred on in-process R & D project Includes a detailed guidance on subsequent expenditure
 Assumes the useful life is always finite (max 10 years) Considers that life could be infinite & in such case no amortization required

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June 2021