The intangible assets note answers four questions for a reader of IFRS accounts: what the company holds, by class; how it is measured and amortised; how the carrying amount moved during the year; and what it spent on research and development that never reached the balance sheet. IAS 38.118 to 128 set out the requirements, and IAS 36 adds the impairment disclosures.
This article lists every requirement in one checklist, then builds a complete note for a single company so you can see how the pieces fit. For the rest of the standard, see our IAS 38 intangible assets guide.
Most of the note is mechanical once the classes are right. The reconciliation (38.118(e)) and the indefinite-life reasoning (38.122(a)) are where reviewers find problems, so build them from the asset records, not from the trial balance.
| Paragraph | Requirement | Practical note |
|---|---|---|
| 118 | For each class, distinguishing internally generated assets from others | Set the classes first (38.119) |
| 118(a) | Whether useful lives are indefinite or finite; if finite, the useful lives or amortisation rates | A range per class is common |
| 118(b) | Amortisation methods for finite-life assets | Usually straight-line |
| 118(c) | Gross carrying amount and accumulated amortisation (with accumulated impairment) at the start and end of the period | Shown in the reconciliation table |
| 118(d) | The line item(s) of the income statement that include amortisation | For example, administrative expenses |
| 118(e) | A reconciliation of the carrying amount from start to end of the period | Eight kinds of movement; see below |
| 119 | Classes: groupings of assets of similar nature and use | Examples include brands, software, licences, patents, and assets under development |
| 120 | Impairment information required by IAS 36 | Usually by cross-reference to the impairment note |
| 121 | The nature and amount of changes in accounting estimates (IAS 8) that have a material effect in the period or are expected to in later periods | For example, a revised useful life, amortisation method or residual value |
| 122(a) | For indefinite-life assets: carrying amount and the reasons supporting that assessment | The factor that played a significant role |
| 122(b) | Description, carrying amount and remaining amortisation period of any individually material asset | |
| 122(c) | For assets acquired through government grants and initially recognised at fair value: that fair value, the carrying amount, and whether the cost or revaluation model is used | Rare for most companies |
| 122(d) | The existence and carrying amounts of assets with restricted title, and of assets pledged as security for liabilities | Relevant to any fixed charge over IP |
| 122(e) | Contractual commitments to acquire intangible assets | |
| 124 | For revalued classes: effective date, carrying amounts and the cost-model equivalent (124(a)); the revaluation surplus at the start and end of the period, the changes in it and any restrictions on distributing it (124(b)) | Only where the revaluation model is used; 125 governs how classes may be aggregated |
| 126 | Aggregate research and development expenditure recognised as an expense in the period | Includes research and pre-criteria development |
| 128 | Encouraged, not required: fully amortised assets still in use, and significant intangibles not recognised | Useful context for readers |
IAS 38.118(e) requires the carrying amount to be reconciled from the start to the end of the period, showing each of these movements:
| # | Movement |
|---|---|
| (i) | Additions, separately for internal development, separate acquisition and business combinations |
| (ii) | Assets classified as held for sale, and other disposals |
| (iii) | Increases or decreases from revaluations and impairment losses recognised or reversed in other comprehensive income |
| (iv) | Impairment losses recognised in profit or loss |
| (v) | Impairment losses reversed in profit or loss |
| (vi) | Amortisation recognised during the period |
| (vii) | Net exchange differences arising on translating the financial statements into the presentation currency, including translating foreign operations |
| (viii) | Other changes in the carrying amount |
Lines that do not apply are simply left out. Under IFRS, comparative figures are required for the previous period too (IAS 1.38).
Northgate is the UK software company used in our IAS 38 worked examples, simplified here to four classes for the year ended 31 December 2026 (the dataset licence and patent from those examples are left out, so there are no exchange or disposal lines). Its internal pricing engine went live on 1 April 2026 at a cost of £480k, £300k of which had been capitalised in 2025. It bought a customer list for £125k on 1 January 2026, and its acquired brand was impaired by £150k at the annual test.
Note 12. Intangible assets. Intangible assets comprise internally developed software, development costs in progress, an acquired customer list and an acquired brand. Software and the customer list have finite useful lives of five years and are amortised on a straight-line basis; amortisation is included in administrative expenses. The brand has an indefinite useful life and is not amortised; it is tested for impairment annually (note 13). Development costs in progress are not amortised until the asset is available for use and are tested for impairment annually.
| Development in progress (internally generated) | Software (internally generated) | Customer list (acquired) | Brand (acquired) | Total | |
|---|---|---|---|---|---|
| Cost | |||||
| At 1 January 2026 | 300 | – | – | 1,200 | 1,500 |
| Additions: internal development | 180 | – | – | – | 180 |
| Additions: separately acquired | – | – | 125 | – | 125 |
| Transfer on completion | (480) | 480 | – | – | – |
| At 31 December 2026 | – | 480 | 125 | 1,200 | 1,805 |
| Accumulated amortisation and impairment | |||||
| At 1 January 2026 | – | – | – | – | – |
| Amortisation charge | – | 72 | 25 | – | 97 |
| Impairment loss (P&L) | – | – | – | 150 | 150 |
| At 31 December 2026 | – | 72 | 25 | 150 | 247 |
| Carrying amount | |||||
| At 31 December 2026 | – | 408 | 100 | 1,050 | 1,558 |
| At 31 December 2025 | 300 | – | – | 1,200 | 1,500 |
The note continues with the narrative items:
| Item | Northgate's disclosure |
|---|---|
| Indefinite life (122(a)) | The brand (carrying amount £1,050k) is assessed as having an indefinite useful life: it is protected by registered trade marks renewable at little cost, it operates in a stable market with no expected technological obsolescence, and the company intends to continue to support it. The assessment was reviewed at 31 December 2026, after the impairment, and remains supported: there is no foreseeable limit to the period over which the brand is expected to generate net cash inflows |
| Material individual asset (122(b)) | The pricing engine software: carrying amount £408k, remaining amortisation period four years and three months |
| Pledged assets (122(d)) | No intangible assets are pledged as security or have restricted title |
| Commitments (122(e)) | None at 31 December 2026 |
| R&D expensed (126) | Research and development expenditure recognised as an expense in the year: £210k (2025: £260k, including the £150k of pricing engine spend before 1 July 2025; the rest relates to other research programmes not covered in the worked examples) |
| Impairment (120) | See note 13 for the brand impairment test and its key assumptions under IAS 36 |
A full set of accounts would also show the 2025 reconciliation: opening cost of £1,200k (the brand), additions from internal development of £300k, and a closing carrying amount of £1,500k.
The figures reconcile in both directions: £1,805k of cost less £247k of accumulated amortisation and impairment is £1,558k, and £1,500k plus additions of £305k, less amortisation of £97k and impairment of £150k, is also £1,558k. Reviewers test both.
FRS 102 Section 18 asks for a similar note, with some differences that matter in practice:
Small entities applying Section 1A of FRS 102 still give, for each class, cost and accumulated amortisation and impairment at the start and end of the year and the year's movements, for the current year only (1AC.12-13), together with the development-cost policy (1AC.4). R&D expensed and individually material assets are not in the Section 1A minimum, though a true and fair view may still require them (1A.17).
For UK companies there is one more point, outside the accounting standards. Under the Companies Act 2006 (s844), capitalised development costs are treated as a realised loss when calculating distributable profits, unless special circumstances justify the directors in deciding otherwise and a note to the accounts says so and explains those circumstances. Consider whether this applies to a capitalised software asset like Northgate's before dividends are declared.
For the wider differences between the frameworks, see IAS 38 vs FRS 102 Section 18.
| Issue | Why it fails |
|---|---|
| Classes that hide the split | One "software" line that mixes developed and bought software does not distinguish internally generated assets, as 38.118 requires |
| A reconciliation that does not reconcile | Opening plus movements must equal closing for every class, and the closing figures must agree to the balance sheet |
| Indefinite life asserted, not explained | 38.122(a) asks for the reasons and the significant factor, not a statement that the life is indefinite |
| R&D expensed left out | 38.126 applies even when nothing was capitalised, and the figure should include pre-criteria development, not just research |
Intangible assets pledged as security must be disclosed under 38.122(d). That includes an IP-backed loan and also an ordinary all-assets debenture with a fixed charge over IP, so check facility agreements before signing off the note.
The note is easiest to prepare, and to review, when it is built from asset-by-asset records rather than from the trial balance. The register in Opagio Intangibles holds each capitalised asset's carrying amount and rolls it forward from opening to closing through additions, amortisation, impairment and disposals: the movement IAS 38.118(e) asks you to reconcile. It also shows a company's accounts on three bases, one at a time: Reported, Accounting-eligible and Management, the last a non-statutory view never used for filing. For practices preparing or reviewing client accounts, see Opagio for advisers.
For each class of intangible asset, distinguishing internally generated from other assets: useful lives or amortisation rates, amortisation methods, gross carrying amount and accumulated amortisation, the income statement line that includes amortisation, and a reconciliation of the carrying amount (IAS 38.118). Paragraphs 122 to 126 add indefinite-life reasoning, material individual assets, pledged assets, commitments, revaluation details and research and development expensed.
Yes. IAS 38.118(e) requires a reconciliation of the carrying amount at the beginning and end of the period for each class, showing additions, disposals, revaluations, impairment losses and reversals, amortisation, exchange differences and other changes. Under IFRS, the comparative period is also presented.
Yes. IAS 38.126 requires the aggregate amount of research and development expenditure recognised as an expense during the period.
Groupings of assets of a similar nature and use. IAS 38.119 gives examples: brand names; mastheads and publishing titles; computer software; licences and franchises; copyrights, patents and other industrial property rights, service and operating rights; recipes, formulae, models, designs and prototypes; and intangible assets under development.
David Stroll is Co-Founder and Chief Scientist at Opagio, where he leads research on intangible asset measurement, accounting standards and the productivity of intangible investment. Meet the team.
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