What does IAS 38 mean?

What does IAS 38 mean? You will find the answer in this article. Please read the text below to find out what IAS means.

Most people have never heard the term IAS 38 before. Maybe you think it’s a flight number, or a war term. None of this is true. To learn more about this term, read what it is in this article.

What is IAS 38?

IAS 38 establishes the criteria for recognizing and measuring intangible assets. It also requires the disclosure of intangible assets. Now you are probably wondering what intangible assets are. This is an identifiable non-monetary asset, without physical form. Identifying it can be done when it is separable, or when it comes from a contractual or legal rights.

You can sell, transfer or license these separable assets as a business. To give you an idea about these separable assets, examples are listed below:

  • Licenses
  • Trademarks
  • Computer software
  • Films and television programs
  • Patents
  • Copyrights
  • Import quotas
  • Patented technology
  • Databases
  • Trade names
  • Internet domains
  • Royalties
  • Franchise agreements
  • Mortgage management rights

Still think this is a little too vague? Then think about the software that is on your computer. You probably paid a fee for your word processor so you could use it. Or think about a movie you watched recently. These services and products have no physical form. As you can see, the list of what is covered by IAS 38 is quite long. Although you often don’t have to deal with it consciously, you do subconsciously. After all, you probably didn’t realize that your favorite television show falls under this.

These intangible assets were acquired through a business combination, or were developed internally. Generally, if the asset was acquired through an acquisition or business merger, you book it at fair values. Was the asset created internally, i.e., the visual material such as a television series? Then you book them according to the costs incurred during their development. So there is a difference in this.

So the intangible assets that fall under this can be created by making something yourself, or by making a purchase. So one recognition criteria of the IAS 38 is that the company made or bought the intangible asset. But there are more criteria attached to it. For example, the asset must have economically demonstrable benefits in the future that will flow to the company. In fact, you must be able to determine the cost price of the asset. This rule applies both if you have purchased the intangible assets or have generated them yourself. Whether the asset will provide economic benefits in the future must be based on assumptions, which you can base, about the asset’s life. If the intangible asset does not meet the definition of these criteria, then IAS 38 requires you to recognize the expenditure you have incurred as an expense, at the time you incur it.

Where can you find more information about IAS 38?

Do you want to know more about IAS 38 after reading this article? Then it’s smart to take a look at annualreporting.info. On this website you will not only find more information about IAS 38, but also about other IAS rules.

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