Amortisation

The systematic allocation of a tangible asset's cost over its useful life. Depreciation reduces the book value of physical assets such as machinery, vehicles, and buildings on the balance sheet while recording the expense on the income statement.

The estimated value of an asset at the end of its useful life or the end of a forecast period. In intangible asset valuation, residual value considerations are important for assets with finite lives, such as patents approaching expiration, as well as for terminal value calculations in discounted cash flow models.

The average remaining period over which a group of intangible assets is expected to contribute to cash flows, weighted by their individual fair values. WARUL is used in purchase price allocation to determine amortisation periods for acquired intangible assets and is required disclosure under several accounting standards.

The process of determining the period over which an intangible asset is expected to contribute to the cash flows of an entity, which governs the amortisation period under IAS 38 and ASC 350. Useful life may be finite (based on contractual, legal, regulatory, technological, or economic factors) or indefinite (when there is no foreseeable limit to the period over which the asset will generate net cash inflows).

The ongoing costs of running a business, including salaries, rent, utilities, marketing, and professional services. Unlike capital expenditure, OpEx is expensed immediately on the income statement.

The profession and practice of recording, classifying, and reporting financial transactions to provide stakeholders with accurate information about an organisation's financial position. In the context of intangible assets, accountancy plays a critical role in determining how items such as goodwill, intellectual property, and customer relationships are recognised, measured, and disclosed under frameworks like IFRS and UK GAAP.

Tax deductions available to businesses in the United Kingdom for qualifying expenditure on certain assets, effectively reducing the taxable profit by allowing the cost of the asset to be written off over time. Capital allowances are particularly relevant to intangible asset investment because the UK tax regime provides specific relief for expenditure on intellectual property, patents, know-how, and certain other intangible assets.

Subsequent expenditure on an intangible asset is spend incurred after the asset has been recognised — renewing and maintaining a registered right, defending it, upgrading software already in use, or continuing to invest in an asset already carried on the balance sheet. Under IAS 38.20 (IFRS), subsequent expenditure is normally recognised in profit or loss as incurred.

What is the IAS 38 revaluation model for intangible assets?

IAS 38 permits revaluation of intangible assets to fair value if an active market exists, but this is rarely used in practice because active markets for most intangible assets do not exist.

What is the difference between amortisation and impairment of intangible assets?

Amortisation systematically allocates cost over the asset's useful life (predictable, planned). Impairment is an unplanned write-down triggered when the asset's carrying amount exceeds its recoverable amount.

Can you capitalise intangible assets on the balance sheet?

Yes, under IAS 38 and ASC 350, intangible assets can be capitalised when they meet specific recognition criteria — but internally generated goodwill and many R&D costs must be expensed.

Can AI-developed software be capitalised under IAS 38?

Yes, AI-developed software can be capitalised under IAS 38 once it meets the six development-phase recognition criteria, including demonstrable technical feasibility and the ability to measure costs reliably.