The useful life of an intangible asset that arises from contractual or other legal rights shall not exceed the period of the contractual or other legal rights, but may be shorter depending on the period over which the entity expects to use the asset. If the contractual or other legal rights are conveyed for a limited term that can be renewed, the useful life of the intangible asset shall include the renewal period(s) only if there is evidence to support renewal by the entity without significant cost. The useful life of a reacquired right recognised as an intangible asset in a business combination is the remaining contractual period of the contract in which the right was granted and shall not include renewal periods.
There may be both economic and legal factors influencing the useful life of an intangible asset. Economic factors determine the period over which future economic benefits will be received by the entity. Legal factors may restrict the period over which the entity controls access to these benefits. The useful life is the shorter of the periods determined by these factors.
Existence of the following factors, among others, indicates that an entity would
be able to renew the contractual or other legal rights without significant cost:
there is evidence, possibly based on experience, that the contractual or other legal rights will be renewed. If renewal is contingent upon the consent of a third party, this includes evidence that the third party will
give its consent;
there is evidence that any conditions necessary to obtain renewal will be
the cost to the entity of renewal is not significant when compared with the future economic benefits expected to flow to the entity from renewal.
If the cost of renewal is significant when compared with the future economic
benefits expected to flow to the entity from renewal, the 'renewal' cost represents, in substance, the cost to acquire a new intangible asset at the renewal date.
Intangible assets with finite useful lives
Amortisation period and amortisation method
The depreciable amount of an intangible asset with a finite useful life
shall be allocated on a systematic basis over its useful life. Amortisation shall begin when the asset is available for use, ie when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Amortisation shall cease at the earlier of the
date that the asset is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with IFRS 5 and the date that the asset is derecognised. The amortisation method used shall reflect the pattern in which the asset's future economic benefits are expected to be consumed by the entity. If that pattern cannot be
determined reliably, the straight-line method shall be used. The
amortisation charge for each period shall be recognised in profit or loss unless this or another Standard permits or requires it to be included in the carrying amount of another asset.
A variety of amortisation methods can be used to allocate the depreciable amount of an asset on a systematic basis over its useful life. These methods include the straight-line method, the diminishing balance method and the unit of production method. The method used is selected on the basis of the expected pattern of consumption of the expected future economic benefits embodied in the asset and is applied consistently from period to period, unless there is a change in the expected pattern of consumption of those future economic benefits.
Amortisation is usually recognised in profit or loss. However, sometimes the future economic benefits embodied in an asset are absorbed in producing other assets. In this case, the amortisation charge constitutes part of the cost of the other asset and is included in its carrying amount. For example, the amortisation of intangible assets used in a production process is included in the carrying amount of inventories (see IAS 2 Inventories).
The residual value of an intangible asset with a finite useful life shall be
assumed to be zero unless:
there is a commitment by a third party to purchase the asset at the
end of its useful life; or
there is an active market (as defined in IFRS 13) for the asset and:
residual value can be determined by reference to that
it is probable that such a market will exist at the end of the
asset's useful life.
The depreciable amount of an asset with a finite useful life is determined after deducting its residual value. A residual value other than zero implies that an entity expects to dispose of the intangible asset before the end of its economic life.
An estimate of an asset's residual value is based on the amount recoverable from disposal using prices prevailing at the date of the estimate for the sale of a similar asset that has reached the end of its useful life and has operated under conditions similar to those in which the asset will be used. The residual value is reviewed at least at each financial year-end. A change in the asset's residual value is accounted for as a change in an accounting estimate in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
The residual value of an intangible asset may increase to an amount equal to or greater than the asset's carrying amount. If it does, the asset's amortisation charge is zero unless and until its residual value subsequently decreases to an amount below the asset's carrying amount.
Review of amortisation period and amortisation method
The amortisation period and the amortisation method for an intangible
asset with a finite useful life shall be reviewed at least at each financial year-end. If the expected useful life of the asset is different from previous estimates, the amortisation period shall be changed accordingly. If there has been a change in the expected pattern of consumption of the future economic benefits embodied in the asset, the amortisation method shall be changed to reflect the changed pattern. Such changes shall be accounted for as changes in accounting estimates in accordance with IAS 8.
During the life of an intangible asset, it may become apparent that the estimate of its useful life is inappropriate. For example, the recognition of an impairment loss may indicate that the amortisation period needs to be changed.
Over time, the pattern of future economic benefits expected to flow to an entity from an intangible asset may change. For example, it may become apparent that a diminishing balance method of amortisation is appropriate rather than a straight-line method. Another example is if use of the rights represented by a licence is deferred pending action on other components of the business plan. In this case, economic benefits that flow from the asset may not be received until later periods.
Intangible assets with indefinite useful lives
An intangible asset with an indefinite useful life shall not be amortised.
In accordance with IAS 36, an entity is required to test an intangible asset with
an indefinite useful life for impairment by comparing its recoverable amount
with its carrying amount
whenever there is an indication that the intangible asset may be
Review of useful life assessment
The useful life of an intangible asset that is not being amortised shall be
reviewed each period to determine whether events and circumstances continue to support an indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite shall be accounted for as a change in an accounting estimate in accordance with IAS 8.
In accordance with IAS 36, reassessing the useful life of an intangible asset as finite rather than indefinite is an indicator that the asset may be impaired. As a result, the entity tests the asset for impairment by comparing its recoverable
amount, determined in accordance with IAS 36, with its carrying amount, and recognising any excess of the carrying amount over the recoverable amount as an impairment loss.
Recoverability of the carrying amount—impairment losses
To determine whether an intangible asset is impaired, an entity applies IAS 36.
That Standard explains when and how an entity reviews the carrying amount of its assets, how it determines the recoverable amount of an asset and when it recognises or reverses an impairment loss.
Retirements and disposals
An intangible asset shall be derecognised:
on disposal; or
when no future economic benefits are expected from its use or
The gain or loss arising from the derecognition of an intangible asset shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset. It shall be recognised in profit or loss when the asset is derecognised (unless IAS 17 requires otherwise on a sale and leaseback.) Gains shall not be classified as revenue.
The disposal of an intangible asset may occur in a variety of ways (eg by sale, by entering into a finance lease, or by donation). In determining the date of disposal of such an asset, an entity applies the criteria in IAS 18 Revenue for
recognising revenue from the sale of goods. IAS 17 applies to disposal by a sale and leaseback.
If in accordance with the recognition principle in paragraph 21 an entity recognises in the carrying amount of an asset the cost of a replacement for part of an intangible asset, then it derecognises the carrying amount of the replaced part. If it is not practicable for an entity to determine the carrying amount of the replaced part, it may use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or internally generated.
In the case of a reacquired right in a business combination, if the right is subsequently reissued (sold) to a third party, the related carrying amount, if any, shall be used in determining the gain or loss on reissue.
The consideration receivable on disposal of an intangible asset is recognised initially at its fair value. If payment for the intangible asset is deferred, the consideration received is recognised initially at the cash price equivalent. The difference between the nominal amount of the consideration and the cash price equivalent is recognised as interest revenue in accordance with IAS 18 reflecting the effective yield on the receivable.
Amortisation of an intangible asset with a finite useful life does not cease when the intangible asset is no longer used, unless the asset has been fully depreciated or is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with IFRS 5.
An entity shall disclose the following for each class of intangible assets,
distinguishing between internally generated intangible assets and other
whether the useful lives are indefinite or finite and, if finite, the
useful lives or the amortisation rates used;
the amortisation methods used for intangible assets with finite
the gross carrying amount and any accumulated amortisation
(aggregated with accumulated impairment losses) at the beginning
and end of the period;
the line item(s) of the statement of comprehensive income in
which any amortisation of intangible assets is included;
a reconciliation of the carrying amount at the beginning and end of
the period showing:
additions, indicating separately those from internal development, those acquired separately, and those acquired
through business combinations;
assets classified as held for sale or included in a disposal group classified as held for sale in accordance with IFRS 5
and other disposals;
increases or decreases during the period resulting from revaluations under paragraphs 75, 85 and 86 and from impairment losses recognised or reversed in other
comprehensive income in accordance with IAS 36 (if any);
impairment losses recognised in profit or loss during the
period in accordance with IAS 36 (if any);
impairment losses reversed in profit or loss during the
period in accordance with IAS 36 (if any);
any amortisation recognised during the period;
net exchange differences arising on the translation of the
financial statements into the presentation currency, and on the translation of a foreign operation into the presentation
currency of the entity; and
other changes in the carrying amount during the period.
A class of intangible assets is a grouping of assets of a similar nature and use in
an entity's operations. Examples of separate classes may include:
mastheads and publishing titles;
licences and franchises;
copyrights, patents and other industrial property rights, service and
recipes, formulae, models, designs and prototypes; and
intangible assets under development.
The classes mentioned above are disaggregated (aggregated) into smaller (larger) classes if this results in more relevant information for the users of the financial statements.
An entity discloses information on impaired intangible assets in accordance
with IAS 36 in addition to the information required by paragraph 118(e)(iii)-(v).
IAS 8 requires an entity to disclose the nature and amount of a change in an accounting estimate that has a material effect in the current period or is expected to have a material effect in subsequent periods. Such disclosure may
arise from changes in:
the assessment of an intangible asset's useful life;
the amortisation method; or
An entity shall also disclose:
for an intangible asset assessed as having an indefinite useful life, the carrying amount of that asset and the reasons supporting the assessment of an indefinite useful life. In giving these reasons, the entity shall describe the factor(s) that played a significant role in determining that the asset has an indefinite useful life.
a description, the carrying amount and remaining amortisation
period of any individual intangible asset that is material to the entity's financial statements.
for intangible assets acquired by way of a government grant and
initially recognised at fair value (see paragraph 44):
the fair value initially recognised for these assets;
their carrying amount; and
whether they are measured after recognition under the cost
model or the revaluation model.
the existence and carrying amounts of intangible assets whose
title is restricted and the carrying amounts of intangible assets pledged as security for liabilities.
the amount of contractual commitments for the acquisition of
When an entity describes the factor(s) that played a significant role in determining that the useful life of an intangible asset is indefinite, the entity considers the list of factors in paragraph 90.
Intangible assets measured after recognition using the
If intangible assets are accounted for at revalued amounts, an entity shall
disclose the following:
by class of intangible assets:
the effective date of the revaluation;
the carrying amount of revalued intangible assets; and
the carrying amount that would have been recognised had
the revalued class of intangible assets been measured after
recognition using the cost model in paragraph 74; and
the amount of the revaluation surplus that relates to intangible assets at the beginning and end of the period, indicating the changes during the period and any restrictions on the distribution of the balance to shareholders.
It may be necessary to aggregate the classes of revalued assets into larger classes for disclosure purposes. However, classes are not aggregated if this would result in the combination of a class of intangible assets that includes amounts measured under both the cost and revaluation models.
Research and development expenditure
An entity shall disclose the aggregate amount of research and
development expenditure recognised as an expense during the period.
Research and development expenditure comprises all expenditure that is directly attributable to research or development activities (see paragraphs 66 and 67 for guidance on the type of expenditure to be included for the purpose of the disclosure requirement in paragraph 126).
An entity is encouraged, but not required, to disclose the following information:
a description of any fully amortised intangible asset that is still in use;
a brief description of significant intangible assets controlled by the entity but not recognised as assets because they did not meet the recognition criteria in this Standard or because they were acquired or generated before the version of IAS 38 Intangible Assets issued in 1998 was
Transitional provisions and effective date
An entity shall apply this Standard:
to the accounting for intangible assets acquired in business combinations for which the agreement date is on or after 31 March 2004;
to the accounting for all other intangible assets prospectively from the beginning of the first annual period beginning on or after 31 March 2004. Thus, the entity shall not adjust the carrying amount of intangible assets recognised at that date. However, the entity shall, at that date, apply this Standard to reassess the useful lives of such intangible assets. If, as a result of that reassessment, the entity changes its assessment of the useful life of an asset, that change shall be accounted for as a change in an accounting estimate in accordance with IAS 8.
An entity shall apply the amendments in paragraph 2 for annual periods beginning on or after 1 January 2006. If an entity applies IFRS 6 for an earlier period, those amendments shall be applied for that earlier period.
IAS 1 Presentation of Financial Statements (as revised in 2007) amended the terminology used throughout IFRSs. In addition it amended paragraphs 85, 86 and 118(e)(iii). An entity shall apply those amendments for annual periods beginning on or after 1 January 2009. If an entity applies IAS 1 (revised 2007) for an earlier period, the amendments shall be applied for that earlier period.
IFRS 3 (as revised in 2008) amended paragraphs 12, 33-35, 68, 69, 94 and 130, deleted paragraphs 38 and 129 and added paragraph 115A. Improvements to IFRSs
issued in April 2009 amended paragraphs 36 and 37. An entity shall apply those amendments prospectively for annual periods beginning on or after 1 July 2009. Therefore, amounts recognised for intangible assets and goodwill in prior business combinations shall not be adjusted. If an entity applies IFRS 3 (revised 2008) for an earlier period, it shall apply the amendments for that earlier period and disclose that fact.
Paragraphs 69, 70 and 98 were amended and paragraph 69A was added by Improvements to IFRSs issued in May 2008. An entity shall apply those
amendments for annual periods beginning on or after 1 January 2009. Earlier application is permitted. If an entity applies the amendments for an earlier period it shall disclose that fact.
IFRS 10 and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraph 3(e). An entity shall apply that amendment when it applies IFRS 10 and IFRS 11.
IFRS 13, issued in May 2011, amended paragraphs 8, 33, 47, 50, 75, 78, 82, 84, 100 and 124 and deleted paragraphs 39-41 and 130E. An entity shall apply those amendments when it applies IFRS 13.
Annual Improvements to IFRSs 2010-2012 Cycle, issued in December 2013, amended
paragraph 80. An entity shall apply that amendment for annual periods
beginning on or after 1 July 2014. Earlier application is permitted. If an entity applies that amendment for an earlier period it shall disclose that fact.
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