Ind AS 38 Intangible explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Ind AS 38 prescribes how to recognise, measure, amortise and disclose intangible assets — identifiable non-monetary assets without physical substance. It sets strict criteria distinguishing capitalisable development costs from expensed research, and prohibits recognising internally generated goodwill, brands and customer lists.
Overview
Ind AS 38, notified under the Companies (Ind AS) Rules, 2015, governs assets such as patents, licences, software, copyrights and acquired customer relationships. Its central tension is between the reality that intangibles increasingly drive corporate value and the risk of recognising uncertain, internally generated "assets" that cannot be reliably measured. The standard resolves this with demanding recognition criteria.
Definition and Recognition
An intangible asset is an identifiable non-monetary asset without physical substance that the entity controls and from which future economic benefits are expected. "Identifiable" requires it to be separable (capable of being sold or licensed independently) or to arise from contractual or legal rights. Recognition requires that future economic benefits are probable and that the cost can be measured reliably.
Scope
Ind AS 38 excludes intangibles covered by other standards — financial assets (Ind AS 109), exploration and evaluation assets, goodwill acquired in a business combination (Ind AS 103), intangibles held for sale (Ind AS 105), leases within Ind AS 116, and deferred tax assets (Ind AS 12).
Research versus Development
This distinction is the practical heart of the standard:
| Phase | Treatment |
|---|---|
| Research (investigating for new knowledge) | Always expensed as incurred |
| Development (applying research before commercial use) | Capitalised only if all six criteria are met |
Development costs are capitalised only when the entity can demonstrate: technical feasibility of completion; intention to complete and use or sell; ability to use or sell; how the asset will generate probable future economic benefits; availability of adequate technical, financial and other resources; and ability to measure reliably the expenditure attributable during development.
Internally Generated Intangibles
Internally generated goodwill, brands, mastheads, publishing titles, customer lists and items similar in substance are not recognised, because their cost cannot be reliably separated from the cost of developing the business as a whole. This is a frequent point of correction on Ind AS transition, where entities may have capitalised brand-building spend.
Measurement and Amortisation
After recognition, an entity applies either the cost model (cost less accumulated amortisation and impairment) or, rarely, the revaluation model — permitted only where an active market exists. An intangible with a finite useful life is amortised systematically over that life (usually straight-line), with the residual value normally assumed to be zero. An intangible with an indefinite useful life is not amortised but is tested for impairment annually and whenever there is an indicator.
Worked Example
A company spends ₹40,00,000 on a research phase and, once technical feasibility is established, ₹1,20,00,000 on development of a new software product meeting all six criteria. The ₹40,00,000 research spend is expensed. The ₹1,20,00,000 development spend is capitalised as an intangible asset. With an estimated useful life of six years, annual amortisation is ₹1,20,00,000 ÷ 6 = ₹20,00,000, charged to profit or loss from the date the software is available for use.
Key Differences from AS 26
The recognition criteria mirror the earlier AS 26, but Ind AS 38 permits an indefinite useful life (with annual impairment testing rather than amortisation), allows a revaluation model where an active market exists, and requires disclosure of the useful lives or amortisation rates and a reconciliation of carrying amounts. AS 26 presumed a maximum useful life of ten years in many cases.