Capital Allowances

The present value of future tax savings arising from the amortisation of an intangible asset for tax purposes. The tax amortisation benefit is often added to the value before the benefit, in fair-value measurements such as purchase price allocations; it is an assumption about a hypothetical buyer, not tax relief the actual buyer receives.

The gradual write-off of an intangible asset's cost over its useful life. Unlike depreciation (which applies to physical assets), amortisation spreads the expense of assets such as patents, software, and licences across the income statement over the period they generate value.

The International Accounting Standard governing the recognition, measurement, and disclosure of intangible assets. IAS 38 requires that an intangible asset be identifiable, controlled by the entity, and expected to generate future economic benefits.

The accounting practice of recording an intangible expenditure as an asset on the balance sheet rather than expensing it immediately through the income statement. Under IAS 38, development costs must be capitalised once the six criteria in IAS 38.57 are met, whereas research costs must always be expensed.

An intangible asset that arises when a company is acquired for more than the fair value of its net identifiable assets. Under IFRS 3, goodwill represents the future economic benefits from assets acquired in the business combination that are not individually identified and separately recognised, including expected synergies and the assembled workforce.

Cloud configuration costs are the amounts a business spends setting up software it accesses as a service rather than owns — configuring a platform to its own processes, customising it, migrating data into it, and training its people. The accounting question is whether that spend creates an intangible asset for the customer.

In-process research and development (IPR&D) is a project acquired part-way through — bought as a standalone asset or picked up in a business combination — where the underlying work is incomplete at the acquisition date. Its treatment differs sharply from the same activity performed in-house, and the difference is a common source of confusion.

Internally generated brands are brand assets a business builds itself over time rather than acquiring them in a transaction. IAS 38.63 (IFRS) names a specific family — internally generated brands, mastheads, publishing titles and customer lists, together with items similar in substance — and does not permit their recognition as intangible assets.

AI and IAS 38: When Can You Capitalise AI Development Costs?

IAS 38 sets six criteria for capitalising development costs, but applying them to AI projects is fraught with ambiguity. This article maps each criterion to AI development realities and provides practical guidance for CFOs and accountants navigating the recognition question.

What are the ASC 350 rules for software capitalisation?

ASC 350-40 requires capitalisation of internal-use software development costs during the application development stage, while preliminary project and post-implementation costs must be expensed.

How do different jurisdictions treat tax amortisation of intangible assets?

Tax amortisation varies significantly: the US allows 15-year amortisation of Section 197 intangibles, the UK relieves most acquired intangibles in an asset purchase but restricts goodwill, and many EU countries vary in relief periods and rates.

What is the difference between tangible and intangible assets?

Tangible assets have physical form: land, buildings, machinery, vehicles and stock. Intangible assets have none: they are identifiable non-monetary assets such as patents, trade marks, software and customer contracts.