All about Indian accounting standard 38 (Ind AS 38)

[ecis2016.org] The Indian accounting standard 38 (Ind AS 38) prescribes accounting norms, for companies to provide details about intangible assets

While presenting their financial statements, corporates are also liable to provide disclosures about their intangible assets. The Indian accounting standard 38 (Ind AS 38) prescribes norms for making such disclosures. The standard defines intangible assets as identifiable non-monetary assets without physical substance.

You are reading: All about Indian accounting standard 38 (Ind AS 38)

This standard requires companies to recognise an intangible asset if specific criteria are met. It also stipulates how to measure the carrying amount of an intangible asset, as well as disclosures about intangible assets.

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Scope of Ind AS 38

The Ind AS 38 shall be applicable for the accounting for intangible assets, except for:

(a) Intangible assets that lie within the scope of another accounting standard.

(b) Financial assets.

(c) The recognition/ measurement of exploration and evaluation assets.

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(d) Expenditure towards the development or extraction of oil, natural gas, minerals and similar non-regenerative resources.

If the accounting for a specific type of intangible asset is prescribed under another standard, then, an entity shall apply that standard instead of Ind AS 38.

Recognition of an intangible asset under Ind AS 38

To recognise an item as an intangible asset, companies need to demonstrate that the item meets the definition of an intangible asset along with the recognition criteria. An intangible asset shall be recognised if it is probable that the asset’s expected future economic benefits will flow to the entity and the asset’s cost can be measured reliably.

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Measurement of intangible assets after recognition under Ind AS 38

Companies should choose either the cost model or the revaluation model, as their accounting policy. If the revaluation model is used for accounting for an intangible asset, all the other assets in its class should also use the same model for accounting, unless there is no active market for those assets.

Cost model of accounting: After initial recognition, an intangible asset should be carried at its cost, minus any accumulated amortisation and any accumulated impairment losses.

Revaluation model of accounting: After initial recognition, an intangible asset should be carried at a revalued amount, being its fair value at the date of the revaluation, minus any subsequent accumulated amortisation and any subsequent accumulated impairment losses.

For revaluations under this standard, the fair value shall be measured with reference to an active market. Revaluations should be made regularly, such that at the end of the reporting period, the asset’s carrying amount does not differ materially from its fair value.

Useful life of an asset under Ind AS 38

Companies should assess whether the useful life of an intangible asset is finite or indefinite. If it is finite, they should specify the length of or number of production or similar units constituting that useful life. An intangible asset should be regarded as having an indefinite useful life when there is no foreseeable limit to the period over which the asset can generate cash inflows for the entity.

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Retirements and disposals under Ind AS 38

An intangible asset has to be derecognised on disposal or when no future economic benefits are expected from its use or disposal. The gain / loss arising due to the derecognition of an intangible asset, shall be determined as the difference between any net disposal proceeds and the carrying amount of the asset. Gains should not be classified as revenue.

Disclosures under Ind AS 38

Companies have to disclose the following for each class of intangible assets, distinguishing between internally-generated intangible assets and other intangible assets:

(a) Whether the useful lives are finite or infinite and if it is finite, then the useful lives or the amortisation rates used.

(b) The amortisation methods used for assets with finite useful lives.

(c) The gross carrying amount and accumulated amortisation (aggregated with accumulated impairment losses) at the beginning and end of the period.

(d) The line item(s) of profit and loss statements, in which any amortisation of intangible assets is included.

(e) A reconciliation of the carrying amount at the beginning and end of the period.

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