The standard tells you the rules; the worked example tells you what to post. This article follows one company, Northgate Analytics Ltd, a UK software business reporting under IFRS with a 31 December year end, through ten situations that come up in real IAS 38 work. Each case opens with the paragraph that decides it, then gives the facts, the analysis, the journal entries in £k, and one line on how FRS 102 Section 18 would differ.
For the standard itself, paragraph by paragraph, start with our IAS 38 intangible assets guide. This article assumes you know the rules and want to see them applied.
| # | Scenario | Deciding paragraph | Outcome |
|---|---|---|---|
| 1 | When development costs start to be capitalised | IAS 38.57, 65 | £150k expensed, £480k capitalised |
| 2 | The entry you cannot make | IAS 38.71 | £150k stays in profit or loss |
| 3 | A brand and customer list built in-house, and a list bought | IAS 38.63, 25 | £570k expensed; £125k capitalised |
| 4 | Spending on an acquired brand | IAS 38.20 | £400k expensed |
| 5 | Amortisation from the date available for use | IAS 38.97, 100 | £72k in year one, £96k a year after |
| 6 | A shorter useful life | IAS 38.104, IAS 8 | £156k a year from 2028 |
| 7 | An indefinite-life brand fails its impairment test | IAS 38.107-108, IAS 36 | £150k impairment loss |
| 8 | Revaluation where an active market exists | IAS 38.75, 85 | £60k to the revaluation surplus |
| 9 | Swapping one licence for another | IAS 38.45 | New licence at £260k, £60k gain |
| 10 | Selling a patent | IAS 38.113 | £50k gain, not revenue |
Four of these cases (1 to 4) turn on history a trial balance does not record. Nothing in the ledger shows when the evidence for a project's criteria first existed, whether a customer list was built or bought, or that a campaign refreshed an acquired brand. Each needs a rule applied to the facts behind the numbers. Tax effects, including deferred tax, are ignored throughout.
IAS 38.57 requires development expenditure to be capitalised from the date the entity can demonstrate all six criteria; IAS 38.65 makes that date the start of the asset's cost.
Facts. Northgate builds Atlas, an internal pricing engine. From January to June 2025 the team evaluates approaches and builds throwaway prototypes: £150k. On 1 July 2025 the board approves the full budget; the architecture is already signed off and project cost codes are live, so this is the last of the six dates. From July to December 2025 the team spends £300k on build, and from January to March 2026 a further £180k. Atlas goes live on 1 April 2026. In March, £18k is spent training the pricing team to use it.
Analysis. The January to June spend is research, or development before the criteria are met, and is expensed (IAS 38.54, 65 and 68). Capitalisation runs from 1 July 2025 to 31 March 2026: £480k. Training is never part of cost (IAS 38.67(c)). At 31 December 2025 the £300k is an intangible asset not yet available for use, so it must be tested for impairment that year even without an indicator (IAS 36.10).
| Date | Account | Dr | Cr |
|---|---|---|---|
| Jan-Jun 2025 | Research and development expense (P&L) | 150 | |
| Cash / payables | 150 | ||
| Jul-Dec 2025 | Development costs in progress (balance sheet) | 300 | |
| Staff and contractor costs (P&L), capitalisation transfer | 300 | ||
| Jan-Mar 2026 | Development costs in progress | 180 | |
| Staff and contractor costs (P&L), capitalisation transfer | 180 | ||
| Mar 2026 | Training expense (P&L) | 18 | |
| Cash / payables | 18 | ||
| 1 Apr 2026 | Software in use (intangible asset) | 480 | |
| Development costs in progress | 480 |
The £300k and £180k were first booked as incurred (Dr staff and contractor costs, Cr cash or payables); the rows above show only the capitalisation transfer. An entity presenting expenses by nature can instead show a separate "work performed by the entity and capitalised" line, as in the illustrative format accompanying IAS 1.
FRS 102: capitalising development costs is a policy choice (18.8H), applied consistently to all development (18.8K). A Northgate that chose to expense all development would post the whole £630k to profit or loss.
To test the six criteria against a project of your own, use the recognition test in our R&D capitalisation guide.
IAS 38.71 prohibits expenditure on an intangible item that was initially recognised as an expense from being recognised as part of the cost of an intangible asset at a later date.
Facts. In 2026 Atlas is a success. The finance director proposes adding the January to June 2025 spend of £150k to the asset's cost, on the grounds that the work turned out to be part of the same successful project.
Analysis. The 2025 accounts expensed that spend because the criteria were not met until 1 July. Hindsight does not change that: the entry below is prohibited. Atlas stays at £480k.
| Account | Dr | Cr |
|---|---|---|
Keep this separate from a prior-period error. If evidence dated before 1 July 2025 had shown all six criteria were already met, and the costs were expensed by mistake, that is a prior-period error: if material, it is corrected retrospectively under IAS 8.42, restating the 2025 comparatives. The test is whether reliable information available when the 2025 accounts were authorised showed the criteria were met (IAS 8.5), without the use of hindsight (IAS 8.53), not what the project later became.
FRS 102: the same rule applies; expenditure on an intangible item initially recognised as an expense is not recognised later as part of the cost of an asset (18.17).
IAS 38.63 prohibits internally generated brands, mastheads, publishing titles, customer lists and items similar in substance from being recognised as intangible assets.
Facts. In 2026 Northgate spends £350k on a campaign to build its own brand and £220k building a customer database from trade-show leads and its own sales pipeline. Separately, it buys a customer list from a competitor that is leaving the market, for £120k plus £5k of legal fees on the transfer.
Analysis. The brand campaign and the home-grown customer database are expensed: IAS 38.64 explains that such spending cannot be distinguished from the cost of developing the business as a whole, and advertising is expensed anyway (IAS 38.69(c)). The bought list is different. It is acquired separately, so it is recognised at cost, including directly attributable professional fees (IAS 38.25-28), and amortised over the period Northgate expects to benefit from it.
| Account | Dr | Cr |
|---|---|---|
| Marketing expense (brand campaign) | 350 | |
| Sales and marketing expense (customer database) | 220 | |
| Cash / payables | 570 | |
| Customer list (intangible asset) | 125 | |
| Cash / payables | 125 |
FRS 102: internally generated brands, customer lists and similar items are not recognised under Section 18 either (18.8C(a)); a separately bought list is recognised at cost (18.10) and always amortised over a finite life.
IAS 38.20 requires later expenditure on brands, mastheads, publishing titles, customer lists and similar items to be recognised in profit or loss as incurred, whether the item was acquired or internally generated.
Facts. In 2024 Northgate acquired a smaller competitor. The purchase price allocation recognised the competitor's brand at £1.2m, with an indefinite useful life. In 2026 Northgate spends £400k relaunching that brand.
Analysis. The brand on the balance sheet came from an acquisition, but the relaunch is still subsequent expenditure on a brand. It cannot be added to the brand's carrying amount, however much it maintains or improves the brand.
| Account | Dr | Cr |
|---|---|---|
| Marketing expense (brand relaunch) | 400 | |
| Cash / payables | 400 |
FRS 102: the outcome is the same, by a different route. Advertising and promotional spend is expensed (18.8C(d)) and spend that builds a brand internally is barred (18.8C(a)); Section 18 has no direct equivalent of IAS 38.20.
IAS 38.97 requires an intangible asset with a finite life to be amortised from the date it is available for use, on a systematic basis that reflects the pattern of consumption, or straight-line if that pattern cannot be determined reliably.
Facts. Atlas (Scenario 1) cost £480k and went live on 1 April 2026. Management expects to use it for five years. No third party has committed to buy it and there is no active market for it, so its residual value is zero (IAS 38.100).
Analysis. The pattern of benefit cannot be determined more reliably than evenly over time, so the method is straight-line. A method based on the revenue Atlas helps to generate would be presumed inappropriate (IAS 38.98A). The annual charge is £480k ÷ 5 = £96k. In 2026 Atlas is available for nine months, so the charge is £72k.
| Year | Opening carrying amount | Charge | Closing carrying amount |
|---|---|---|---|
| 2026 (9 months) | 480 | 72 | 408 |
| 2027 | 408 | 96 | 312 |
| 2028 | 312 | 96 | 216 |
| 2029 | 216 | 96 | 120 |
| 2030 | 120 | 96 | 24 |
| 2031 (3 months) | 24 | 24 | 0 |
| Account | Dr | Cr |
|---|---|---|
| Amortisation expense (P&L) | 72 | |
| Accumulated amortisation, software | 72 |
Try the same schedule with your own figures: change the cost, the useful life or the month the asset goes live, and the year-one charge and carrying amount update.
FRS 102: amortisation also starts when the asset is available for use (18.22), and the useful life is always finite, at most 10 years in the exceptional cases where it cannot be reliably estimated (18.19-18.20).
IAS 38.104 requires the useful life and amortisation method of a finite-life intangible to be reviewed at least at each financial year end, with any change accounted for prospectively as a change in estimate under IAS 8.
Facts. At 31 December 2027 Northgate decides to replace Atlas with a new platform at the end of 2029. Atlas's carrying amount is £312k (Scenario 5). Its remaining useful life is now two years, not the three years and three months originally expected.
Analysis. The 2027 charge of £96k stands; nothing is restated. From 1 January 2028 the remaining £312k is spread over two years: £156k a year. A sharp cut in useful life may also be an indicator that Atlas is impaired, so Northgate considers whether an IAS 36 test is needed at the same date.
| Account | Dr | Cr |
|---|---|---|
| Amortisation expense (P&L) | 156 | |
| Accumulated amortisation, software | 156 |
FRS 102: useful life and method are reviewed when there is an indication that they have changed (18.24), and a change is again prospective.
IAS 38.107 prohibits amortising an intangible asset with an indefinite useful life; IAS 38.108 requires it to be tested for impairment every year and whenever there is an indication of impairment.
Facts. The acquired brand from Scenario 4 is carried at £1.2m. At the 2026 annual test, its value in use is £1.05m and its fair value less costs of disposal is £0.98m. (This assumes the brand's recoverable amount can be estimated on its own; a brand that does not generate largely independent cash inflows is tested within its cash-generating unit, IAS 36.22 and 66-67.)
Analysis. Recoverable amount is the higher of the two: £1.05m. The brand is written down by £150k. Northgate must also reassess whether the life is still indefinite (IAS 38.109); if it concluded the life had become finite, that change would itself be an indicator of impairment (IAS 38.110). If the brand's prospects later recover, the loss can be reversed, unlike a goodwill impairment.
| Account | Dr | Cr |
|---|---|---|
| Impairment loss (P&L) | 150 | |
| Accumulated impairment, brand | 150 |
For how value in use differs from fair value, see value in use vs fair value and our FAQ on indefinite useful lives.
FRS 102: the brand would have a finite life and be amortised, over at most 10 years in the exceptional cases where its life cannot be reliably estimated, and tested for impairment only when there is an indicator (27.7).
IAS 38.75 allows an intangible asset to be carried at a revalued amount only if fair value can be measured by reference to an active market; IAS 38.85 takes a revaluation increase to other comprehensive income.
Facts. A different entity, a fishing company, buys a freely transferable fishing quota for £500k in January 2026. Quotas of this kind trade in an active market. The company adopts the revaluation model for the whole class of quotas and assesses the quota's life as indefinite. At 31 December 2026 the market price of the quota is £560k.
Analysis. This is one of the rare cases IAS 38.78 contemplates. The increase of £60k goes to the revaluation surplus in equity through other comprehensive income. A later fall would first reduce that surplus, with any excess in profit or loss (IAS 38.86). Northgate's own assets, a pricing engine and a brand, could never be revalued: each is unique, so no active market can exist for it.
| Account | Dr | Cr |
|---|---|---|
| Fishing quota (intangible asset) | 60 | |
| Revaluation surplus (OCI) | 60 |
Our FAQ on the IAS 38 revaluation model covers the conditions in more detail.
FRS 102: the revaluation model is also available where fair value can be determined by reference to an active market (18.18-18.18B), and is just as rare. The difference is that the quota would have a finite life and be amortised (18.19), so the revaluation increase to OCI (18.18G) would be measured against an amortised carrying amount.
IAS 38.45 measures an intangible asset acquired in exchange for another non-monetary asset at fair value, unless the exchange lacks commercial substance or neither fair value can be measured reliably.
Facts. Northgate holds a licence to a third-party dataset: cost £250k, accumulated amortisation £50k, carrying amount £200k. It exchanges that licence for a licence to a different dataset held by a partner. The two licences produce significantly different cash flows for Northgate, so the exchange has commercial substance (IAS 38.46). The fair value of the licence given up is £260k.
Analysis. The new licence is recognised at the fair value of the licence given up, £260k (IAS 38.47). The old licence is derecognised and the £60k difference is a gain in profit or loss, which IAS 38.113 says is not revenue.
| Account | Dr | Cr |
|---|---|---|
| New dataset licence (intangible asset) | 260 | |
| Accumulated amortisation, old licence | 50 | |
| Old dataset licence, cost | 250 | |
| Gain on exchange (P&L, other income) | 60 |
FRS 102: an exchange is also measured at fair value unless it lacks commercial substance or fair value cannot be measured reliably (18.13).
IAS 38.113 requires the gain or loss on derecognising an intangible asset to be recognised in profit or loss when the asset is derecognised, and not to be classified as revenue.
Facts. Northgate sells a patent it no longer uses: cost £150k, accumulated amortisation £60k, carrying amount £90k. The buyer pays £140k in cash.
Analysis. The gain is £140k less £90k: £50k, presented outside revenue, for example in other operating income.
| Account | Dr | Cr |
|---|---|---|
| Cash | 140 | |
| Accumulated amortisation, patent | 60 | |
| Patent, cost | 150 | |
| Gain on disposal (P&L, other income) | 50 |
FRS 102: the gain or loss on derecognition is also recognised in profit or loss (18.26).
Scenarios 5 to 10 start from an asset already on the balance sheet, and the arithmetic follows from it. Scenarios 1 to 4 do not. Whether a cost belongs in Atlas depends on when the evidence for each criterion existed; whether a customer list can be recognised depends on whether it was built or bought; whether spending can be added to an asset depends on whether it is later spend on a brand or customer list, which never can be (IAS 38.20). None of that is visible in a trial balance.
A practitioner reviewing Northgate's 2026 ledger sees £1.2m of staff, contractor and marketing costs. The questions that decide the accounts are about the history behind those lines: which project, which dates, built or bought, new asset or later spend on an existing one.
Opagio Intangibles keeps those questions beside the numbers. It shows a company's ledger on three bases, one at a time: Reported (the accounts as filed), Accounting-eligible (what the standards would let the company capitalise, with the IAS 38.63 bar on internally generated brands and customer lists applied) and Management (a non-statutory view, never for filing). For practices that want to run these tests across a client base, see Opagio for advisers.
On the date the entity can first demonstrate all six criteria in IAS 38.57: technical feasibility, intention to complete, ability to use or sell, probable future economic benefits, adequate resources and reliable measurement. IAS 38.65 makes that date the start of the asset's cost. Spending before it is expensed and cannot be added later (IAS 38.71).
Costs are usually first booked to expense lines such as salaries and contractor fees. The capitalisation entry debits development costs in progress on the balance sheet and credits those expense lines for the qualifying amount. When the asset is available for use, development in progress is transferred to the finished intangible asset and amortisation begins (IAS 38.97).
No. IAS 38.113 requires the gain or loss on derecognition to be recognised in profit or loss but not classified as revenue. It is usually presented in other operating income or as a separate line.
No. IAS 38.20 requires subsequent expenditure on brands, mastheads, publishing titles, customer lists and similar items to be expensed as incurred, whether the item was acquired or internally generated.
David Stroll is Chief Scientist at Opagio, where he leads research on intangible asset measurement, accounting standards and the productivity of intangible investment. Meet the team.
Opagio Intangibles runs RFR, MPEEM, With & Without and Cost across every intangible asset you own — the evidence base that survives Fair Value scrutiny.
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