Accounting for Intangible Assets: Recognition, Measurement, and Impairment

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International Accounting Standards 38 (IAS) directs the accounting procedure and prerequisites for intangible assets. Intangible assets are not physical substances; hence unidentifiable and cannot be recognised. Assessing the value of intangible assets in monetary terms is tricky and involves specific recognition and measurement processes. 

The intangible assets that attain the identification criteria are first measured at cost. Then they are amortised and measured systematically to calculate the value of the asset’s remaining useful life. Computer services, company goodwill, trademarks, and patented technology are some examples of intangible assets. Read about the recognition criteria, measurement procedure, and other factors regarding intangible assets covered in an ACCA course online.

Recognition Criteria

According to IAS 38, only the intangible assets associated with an entity will be recognised. Such an asset can be either purchased or self-created, but it must meet specific requirements, which are:

  • There must be a high probability that any economic benefit resulting from that asset will go in favour of the entity.
  • The value or cost of the asset must be ascertained reliably.

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Recognising intangible assets requires fulfilling various other criteria and pursuing an ACCA course online can help one understand how to deal with them effectively. If an intangible item does not meet both the recognition criteria, it will fall out of the assets category, and the expenditure incurred on such an item will be recorded as an expense in the accounts books.

Measurement of Intangible Assets

As stated in IAS 38, intangible assets are initially measured at cost. The value of intangible assets will always be measured and recorded in the books of accounts at the cost the entity has acquired it. 

Measurement post acquisition

Another way of measuring intangible assets is in case of acquisition of the same. Understanding the modes of calculating and measuring intangible assets is essential if you are preparing for the ACCA exam. Measurement of intangible assets in case of acquisition can be done in two ways enumerated as follows:

  • Cost model: In this model, once an intangible asset is developed or brought at cost and has been recognised, it should be calculated at cost deducting the total impairment losses and amortisation.
  • Revaluation model: Another mode of measuring intangible asset value is the revaluation model, where the revalued amount is based on fair value. If any reference to any active market can ascertain the fair value of the asset, the value of the intangible asset will be measured at fair value minus the accumulated amortisation and impairment losses. However, the existence of active markets in the case of intangible assets is rare. 

As per the revaluation model, revaluation rises are recorded in other comprehensive income. Revaluation surplus comes under the head of equity only if not recorded in the profit and loss statement. However, the revalued intangible asset has a limited life span and hence is likely to be amortised.

Measurement of Intangible Assets Based on Useful Life

Intangible assets can be classified into two broad categories as mentioned below:

  • Infinite life: Intangible assets are said to have infinite life when there is no foreseeable limit to the time or period to which that asset can yield cash inflows for the entity.
  • Finite life: Intangible assets have a finite life when there is a foreseeable limit to the period up to which it can generate cash inflows and benefit an entity.

Both these categories follow different methods of value measurement of the assets. 

Measurement of intangible assets with an indefinite useful life

While measuring the value of an intangible asset with an indefinite useful life, the asset’s amortisation should not occur. The value and indefinite life of the asset should be revised in each accounting period to check whether it lives up to the circumstances and events of indefinite useful life. If not, the shift from an indefinite to a finite useful life evaluation should be recorded as a modification in an accounting estimate.

Additionally, the intangible asset should also go through an assessment to check for empowerment according to the IAS standards 38. 

Measurement of intangible assets with a finite useful life

An intangible asset with finite useful life needs to be amortised, and the value of the asset should be assessed by deducting the residual value of the asset from the cost of the same. This process should follow a systematic way to evaluate the cost over a period of time correctly. 

However, the process of amortisation of the asset should depict the pattern of benefits, based on the fair value of the intangible asset. In case the pattern cannot be adequately evaluated, the amortisation process should be done according to the straight-line method. Generally, the cost of amortisation is recorded in the profit and loss statement unless otherwise required to be recorded as an expense as regards another asset. The period of amortisation needs to be reviewed at least once a year.

The amortisation standard involves a rebuttable presumption that the revenue-based amortisation process of an intangible asset is improper. Still, there are a few instances when this presumption can be proven wrong, such as:

  • When the intangible asset is recognised as a source of revenue.
  • When it can be shown that revenue and consumption of economic benefits of the intangible asset are extremely correlated.


We have moved beyond calculating and assessing the value of tangible assets, as the role and significance of intangible assets in an entity has grown manifold. Understanding the accounting standards for intangible assets has become extremely important for the upcoming chartered accountants. However, deriving the right value of an intangible asset is much more complex and challenging when compared to tangible assets.

If you want to become a leading chartered accountant focused on making an impact, then the Association of Chartered Certified Accountants, UK Programme by Imarticus can be a great step towards achieving a successful career. Enrol to pursue an ACCA course online and learn all you need about financial accounting, management accounting and business technology with a back-to-basics approach smoothening the transition for working professionals.

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