Subsequent Expenditure (IAS 38)
Definition
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. The standard's reasoning is that such expenditure usually maintains the future economic benefits already embodied in the asset rather than adding to them, and that it is often not possible to attribute it to a particular intangible asset rather than to the business as a whole. Carrying it forward is the exception, available where the expenditure genuinely enhances the asset beyond its originally assessed standard of performance and the recognition criteria are met on their own terms. Worked example: a business holds a granted patent. The annual renewal fees and the legal cost of defending the right against an infringer are characteristically maintenance and are expensed; the cost of prosecuting a further claim that extends the protected scope is a separate question, tested on its own facts. Jurisdiction contrast: US GAAP reaches a similar result for subsequent costs on recognised intangibles through ASC 350-30, and FRS 102 s.18 applies the same maintain-versus-enhance logic. The judgement management makes is whether a tranche of spend maintains an existing capability or creates a measurable enhancement — a decision far easier to support when it is made and recorded at the point the money is committed.
Taking a defensible position
The position
IAS 38.20 states that subsequent expenditure on a recognised intangible asset is normally recognised in profit or loss as incurred. The reasoning is that such expenditure usually maintains the future economic benefits already embodied in the asset rather than adding to them, and that it is often not possible to attribute it to a particular asset rather than to the business as a whole. Carrying it forward is the exception and is tested against the recognition criteria.
A defensible posture
A management team can reasonably carry forward subsequent expenditure where it can point to a specific enhancement — a new capability, an extended protected scope, a measurable increase in output — and separate that spend from routine upkeep. The version that holds is decided at the point of commitment and documented then, with renewal, maintenance and defence costs treated as period costs.
Evidence to hold
- A written scope or change request describing what the expenditure adds beyond the asset’s originally assessed standard of performance.
- Cost records separating enhancement work from routine maintenance, renewal and defence of the right.
- Board or steering-group approval recording the additional benefit expected and how it would be measured.
- Renewal and maintenance invoices identified as such, so the expensed population is visible without reconstruction.
- A dated assessment of the asset’s performance before and after the work.
The challenge you may face
Expect a reviewer to sample capitalised subsequent costs and ask what capability the entity did not have before. Common probes: whether the legal cost of defending a right has been described as enhancement, whether an upgrade to software already in use extended functionality or restored it, and whether the enhancement population was identified when the spend was committed or assembled at the year end.
Complementary Terms
Concepts that frequently appear alongside Subsequent Expenditure (IAS 38) in practice.
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.
Government-granted exclusive rights to an invention, giving the patent holder the right to prevent others from making, using, or selling the invention for a specified period (typically 20 years). Patents are among the most clearly defined and legally enforceable intangible assets.
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.
Run-the-business cost is management-accounting shorthand for expenditure that sustains an organisation's existing capability at its current level: renewals, routine maintenance, support and service costs, replacement of worn-out capacity, and the ordinary running of teams and systems already in place. Its counterpart is growth investment — expenditure intended to create a capability the business does not yet have, or to extend one materially beyond its current standard.
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.
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.
Further Reading
IP audit — what you hold and what it is worth
A structured review of registered rights, renewals and the records that support them.
Read more →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.
Read more →Related FAQ
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.
Read full answer →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.
Read full answer →What is the tax treatment of intangible assets and amortisation?
In a UK asset purchase, tax relief on acquired intangibles generally follows their accounting amortisation. Goodwill and customer-related intangibles get relief only with qualifying IP, at 6.5% a year since April 2019. A share purchase gives none.
Read full answer →Put this knowledge to work
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