When does IPR&D become developed technology?

When the project reaches commercial deployment. The trigger is the start of the technology's commercial use — first revenue, first sale, first deployment to a paying customer, or regulatory approval where applicable (pharma, medical devices). On the trigger date, the IPR&D is reclassified to developed technology, a useful life is determined based on technology-lifecycle considerations, and amortisation begins from that date. The carrying value at reclassification is the IPR&D's acquisition-date fair value adjusted for any impairment recognised in the interim.

Is internal IPR&D recognised as an asset?

Generally no. Under IAS 38.54 (UK and global), research costs are expensed, and development costs are only capitalised when the strict six-criteria test in IAS 38.57 is met. Under ASC 730 (US), most R&D is expensed as incurred. The exception is IPR&D acquired in a business combination — IFRS 3 (UK and global) and ASC 805 (US) override the normal capitalisation rules and require recognition of acquired IPR&D regardless of whether internal-development capitalisation would apply. This creates an asymmetry: the same project recognised at acquisition might never have been capitalised internally.

What discount rate premium is appropriate for IPR&D?

The premium reflects residual technical and commercial risk in the project. Late-stage IPR&D (Phase III pharma, near-commercial software, completed designs awaiting regulatory clearance) typically attracts a premium of 300-500bps above WACC. Mid-stage IPR&D attracts 500-800bps. Early-stage IPR&D (Phase I or II pharma, proof-of-concept software, experimental designs) attracts 800-1,500bps or more. The defensible position is to anchor the premium to comparable industry observations and document the stage-of-development reasoning.

How are probability weights set in multi-stage IPR&D DCF?

Probability weights at each stage are derived from industry data on the historical conversion rates from one stage to the next. For pharma, the standard reference is sector studies that show, for example, Phase II to approval rates of 30-40% in oncology, 50-60% in dermatology. For software and other technology, the data is thinner — practitioners use management's track record on similar projects, comparable acquisition cases, and conservative bounds. Management-derived weights without external anchor are the most common audit challenge.

Is IPR&D tested for impairment annually?

Yes, under both IAS 36 (UK and global) and ASC 350 (US) while it is classified as indefinite-life. The annual test compares the asset's recoverable amount to its carrying value. Recoverable amount is the higher of (a) fair value less costs of disposal and (b) value in use. Where the project has experienced setbacks — delayed milestones, regulatory feedback requiring rework, competitive substitution risk — these are typically indicators that recoverable amount has fallen below carrying value and an impairment may be required. Stale IPR&D balances that have not moved despite known project setbacks attract sharp audit attention.

What happens when IPR&D is abandoned?

The carrying value is written off through impairment to nil. The write-off is recognised in profit or loss in the period the abandonment decision is made (or earlier, if impairment indicators were present in a prior period). Abandonment is a recognition event — auditors test the timing carefully because delaying recognition smooths reported profits, and the standards do not permit deferral once the abandonment decision is made.

Does TAB apply to IPR&D at acquisition?

Yes, in jurisdictions where the acquired IPR&D will be eligible for tax amortisation post-completion. The TAB factor is applied to the IPR&D's acquisition-date fair value at acquisition, even though tax amortisation will not begin until the project completes and amortisation commences. This treats the future tax shield's present value as part of the acquisition-date fair value, consistent with the market-participant principle of IFRS 13 (UK and global) and ASC 820 (US).

What is the FRS 102 treatment of IPR&D?

Under FRS 102 Section 18 (UK), the recognition criteria for intangibles are tighter and indefinite-life classification is not permitted. Acquired IPR&D is treated under IAS 38's normal capitalisation criteria — most projects fail the six-criteria test in IAS 38.57 and are therefore not recognised separately under FRS 102. Where the entity has a choice of framework, IFRS 3 (UK and global) and ASC 805 (US) recognition is materially broader for IPR&D than FRS 102. FRS 102 transitions sometimes require derecognition of IPR&D that was previously recognised under IFRS.

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Developed Technology vs IPR&D — Two Stages of Technology Intangible

Developed technology is commercially deployed at acquisition (RFR or MPEEM, amortised over useful life). IPR&D is technology under development that has not yet been commercialised (multi-stage DCF, held as indefinite-life until project resolves). Classification turns on stage of development.

Developed technology and IPR&D are two distinct intangible asset classes that sit at different stages of the same technology lifecycle. Developed technology is commercially deployed and generating cash flow at acquisition — valued using RFR or MPEEM. IPR&D is technology in active development that has not yet been commercialised — valued using multi-stage DCF and held as indefinite-life intangible until the project either completes or is abandoned. Under IFRS 3 (UK and global) and ASC 805 (US) both are separately identifiable; FRS 102 Section 18 (UK) applies tighter recognition criteria.

Criteria	Developed Technology	IPR&D (In-Process R&D)
Stage of development at acquisition	Commercially deployed; generating cash flow	Active development; not yet commercially deployed
Recognition criterion (IFRS 3 / ASC 805)	Contractual or legal rights, OR separable	Recognised regardless of internal-development capitalisation criteria
Dominant valuation method	RFR (where royalty benchmarks exist) or MPEEM (primary intangible)	Multi-stage DCF with probability weighting, or cost approach where DCF unsupportable
Discount rate premium	WACC + 100-300bps (SaaS) to + 500bps (early / experimental)	WACC + 300-800bps (late stage) to + 1,000bps+ (early stage)
Useful life at acquisition	Finite — typically 3-15 years	Indefinite — until project completes or is abandoned
Amortisation at acquisition	Yes — straight-line by default	No — held as indefinite-life until reclassification
Impairment testing pattern	Trigger-based under IAS 36 / ASC 350	Annual impairment test mandatory while indefinite-life
Subsequent reclassification	Generally remains developed technology through life	Reclassified to developed technology on project completion; amortisation begins
TAB applicability	Yes — applied to RFR or MPEEM result	Yes — applied to DCF or cost result; future tax benefits captured at acquisition
Treatment under FRS 102 Section 18 (UK)	Recognition criteria tighter; finite life mandatory; max 10-year fallback	IAS 38.57 capitalisation criteria applied — most IPR&D not recognised separately
Common pitfall	Optimistic useful life; misattribution of revenue to multiple drivers	Probability weighting derived without sector benchmarks; stale impairment tests

When to Use Each Approach

Developed Technology

Technology commercially deployed and generating cash flow at acquisition
Software, SaaS platforms, patented compounds with active commercial use
RFR where royalty benchmarks exist; MPEEM where technology is primary income generator
PPA where the technology is identifiable separately from other intangibles

IPR&D (In-Process R&D)

Technology in active development without commercial deployment at acquisition
Pharma compounds in clinical-stage trials; pre-launch software platforms
Multi-stage DCF where probability-weighted revenue projections can be supported
Cost approach where DCF cannot be supported (very early stage)

Our Verdict

Developed technology and IPR&D are two stages of the same technology lifecycle. The classification turns on whether commercial deployment has happened by the acquisition date. RFR / MPEEM for developed technology with finite useful life; multi-stage DCF for IPR&D held indefinite until project resolves. Audit teams test the stage-of-development evidence first and the probability weighting / useful life second.

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Developed Technology vs IPR&D — Two Stages of Technology Intangible

When to Use Each Approach

Developed Technology

IPR&D (In-Process R&D)

Our Verdict

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