PAS 38
Intangible
ASSETS
Core Objective
Core Objective
PAS 38 prescribes the accounting treatment for
intangible assets that are not dealt with
specifically in another standard. It requires an
entity to recognize an intangible asset if, and
only if, specific criteria are met.
Scope & Definition
PAS 38 applies to all intangible assets except
those specifically dealt with in other standards
(goodwill in PFRS 3, inventory in PAS 2).
Key terms:
Intangible Asset: An identifiable non-
monetary asset without physical substance.
Identifiability: An asset is identifiable if it is
separable (can be sold/transferred) or arises The patent will be useful for the entire legal life of 20 years.
from contractual/legal rights. On January 1, 2026, the entity paid P180,000 to attorneys for the
services in connection with a successful defense of the patent.
Control: The power to obtain future economic On January 1, 2027, the entity purchased a competing patent for
benefits from the underlying resource and P170,000 in order to protect the original patent.
restrict others' access to those benefits. The competing patent has 18 years to run from the date of acquisition.
On December 31, 2027, the product covered by the patent was
Recognition & Measurement withdrawn from sale under a government order because of potential
An intangible assets shall be recognized if hazard in the product.
management can demonstrate that: Journal entries
1. To record the development of the patent:
The item meets the definition of intangible Research and development expense 200,000
Cash 200,000
asset.
2. To record the cost of licensing of the patent:
It is probable that the expected future
Patent 120,000
economics benefits will flow to the entity; and Cash 120,000
The cost of the assets can be measured 3. To record the amortization of the patent for 2024:
reliably. Amortization of patent 6,000
Patent 6,000
An intangible assets shall be measured initially at
4. To record the amortization of the patent for 2025:
cost. Measurement of cost depends on how the
Amortization of patent 6,000
intangible asset is acquired. Intangible assets my Patent 6,000
be acquired through: 5. To record the cost of successful defense of the patent in 2026:
Legal expenses 180,000
Separate acquisition Cash 180,000
Acquisition as part of busines combination 6. To record the amortization of the patent for 2026:
Amortization of patent 6,000
Acquisition by way of a government grant
Patent 6,000
Exchanges of assets
7. To record the acquisition cost of a competing patent on
Internal Generation January 1, 2027:
Patent 170,000
The "Real World" Case Cash 170,000
Illustration 8. To record the amortization of the patent for 2027:
An entity developed a patent at cost of Amortization of patent 16,000
P200,000 and spent P120,000 for the Patent 16,000
9. To write off the patent account on December 31, 2027:
licensing of the patent including legal fees
Patent written off 256,000
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and cost of models and drawings that
Patent 256,000
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accompany the registration on January 1,
2024.
Presentation & Disclosure
An entity must disclose the following for each class of intangible assets:
Minimum content requirement Key disclosure requirement
Useful lives (finite or indifinite) Amortization method use for finite lives
Gross carrying amount and accumulated Line items in the income statement where
amortization amortization is included
Reconciliation of the carrying amount at the Basis for determining that an asset has an
beginning and end of the period indifinite useful life.
Research and development expenditure Contractual commitments for the acquisition
recognized as an expense of intangible assets.
CATEGORY RECOGNITION MEASUREMENT
SEPARATE Always recognized if Purchase Price + Direct
ACQUISITION definition is met Cost
BUSINESS
Recognized at fair value Fair Value
COMBINATION
Visual Aids
INTERNAL
Never Recognized Expensed
GENERATION
(RESEARCH)
Recognized ONLY if
INTERNAL
technical feasibility
GENERATION Capitalized Cost
& intent to complete are
(DEVELOPMENT)
proven
GOODWILL Never Recognized N/A
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