What is the accounting treatment for intangible assets under IAS 38?

The treatment of intangible assets under IAS 38 is governed by specific guidelines that dictate their recognition and measurement. According to IAS 38, intangible assets are recognized initially at cost. This includes the purchase price and any directly attributable costs to prepare the asset for its intended use.

Once recognized, intangible assets are subject to amortization, which means their cost is systematically allocated over their useful life. This is similar to the treatment of tangible assets but tailored to acknowledge the unique characteristics of intangible assets, such as patents, trademarks, or goodwill. If an intangible asset has an indefinite useful life, it is not amortized but is instead tested annually for impairment.

This approach ensures that the financial statements reflect both the value of the intangible assets and their declining value over time, providing users of the financial statements with relevant and reliable information. The recognition at cost, along with the possibility of subsequent amortization, forms the cornerstone of how intangible assets are treated in financial reporting under IAS 38.