Ind AS 38: Intangible Assets — Recognition, Amortisation & Impairment
- What Is an Intangible Asset? Core Criteria
- Recognition: Acquired vs Internally Generated
- The R&D Rule: Research Always Expensed, Development Maybe Capitalised
- Amortisation: Finite vs Indefinite Useful Life
- Impairment of Intangibles
- Case Study: TCS — Reported Intangible-Asset Balances
- Case Study: Sun Pharma — Drug Discovery R&D
- Case Study: Hindustan Unilever — Acquired Brands & Trademarks
- Comparison: Ind AS 38 vs Old IGAAP
- Key Disclosures Required Under Ind AS 38
Ind AS 38 governs accounting for intangible assets — identifiable non-monetary assets without physical substance. From capitalised software development costs to acquired brand names, drug licences to customer relationships recognised in a business combination, intangibles are central to the balance sheets of India's knowledge-economy companies. The standard draws a sharp line between what can be recognised as an asset and what must be expensed — and the consequences are significant for reported EBITDA, profit, and balance sheet strength.
For broader context, see the Companies Act, MCA and Startup Compliance Hub.
| Structural block | What it covers |
|---|---|
| Objective and scope | Prescribes accounting for intangible assets — identifiable, non-monetary assets without physical substance (patents, software, licences, customer relationships) — not specifically dealt with in another standard. |
| Identifiability and recognition | An intangible asset must be identifiable (separable, or arising from contractual/legal rights), controlled by the entity, and expected to generate future economic benefits — recognised only when cost can be measured reliably and the recognition criteria are met. |
| Internally generated intangibles | Research costs are always expensed as incurred; development costs are capitalised only once the entity can demonstrate technical feasibility, intention and ability to complete and use/sell the asset, and reliable cost measurement — internally generated goodwill, brands, and similar items are never recognised as assets. |
| Measurement after recognition | Cost model (cost less accumulated amortisation and impairment) or, rarely used in India, revaluation model where an active market exists. |
| Useful life and amortisation | Assets with a finite useful life are amortised systematically over that life; assets with an indefinite useful life are not amortised but are tested for impairment at least annually (per Ind AS 36) and the "indefinite" assessment is reviewed each period. |
| Derecognition and disclosure | Derecognised on disposal or when no future economic benefits are expected; disclosures include a reconciliation of carrying amount by class, and separate disclosure of the aggregate research and development expenditure recognised as an expense. |
What Is an Intangible Asset? Core Criteria
Under Ind AS 38, an intangible asset is an identifiable non-monetary asset without physical substance. Three conditions must all be met:
- Identifiability: Separable from the entity (can be sold, transferred, licensed independently), OR arises from contractual/legal rights (even if inseparable)
- Control: Entity has power to obtain future economic benefits from the resource and can restrict others' access
- Future economic benefits: Expected inflow of revenues, cost savings, or other economic benefits attributable to the asset
Examples: patents, copyrights, customer lists, software licences, brand names (acquired), franchise rights, customer relationships, drug approvals (ANDA, NDA), mining rights.
Recognition: Acquired vs Internally Generated
Recognition depends critically on whether the intangible was acquired externally or generated internally.
| Source | Recognition | Initial Measurement |
|---|---|---|
| Separately acquired (e.g., patent purchased) | Recognised as asset if identifiable, controllable, future benefits probable | Cost = purchase price + directly attributable costs to prepare for intended use |
| Acquired in business combination (Ind AS 103 PPA) | Recognised separately from goodwill if fair value can be reliably measured | Fair value at acquisition date (even if not on acquiree's balance sheet) |
| Internally generated (brand, masthead, customer list) | Cannot be recognised — always expensed | N/A |
| Internally generated — development phase (qualifying) | Recognised if all 6 criteria met (see below) | Directly attributable costs from date criteria first met |
| Received as government grant | Can recognise at fair value or nominal amount | Per Ind AS 20 |
The R&D Rule: Research Always Expensed, Development Maybe Capitalised
This is the most practically important part of Ind AS 38 for pharma, tech, and industrial companies. The standard distinguishes research from development:
Original, planned investigation to obtain new scientific/technical knowledge and understanding
Always expensed — no exceptions. Cannot be capitalised regardless of outcome probability.
Examples: laboratory studies, testing of alternatives, searching for new knowledge
Application of research findings to plan/design new or substantially improved products/processes
Capitalised only if ALL 6 criteria are met
Examples: prototype testing, design of tools/jigs/dies, pilot plant design
The 6 Development Capitalisation Criteria (All Must Be Met)
- Technical feasibility of completing the intangible so it will be available for use or sale
- Intention to complete and use/sell it
- Ability to use or sell the asset
- Probable future economic benefits — demonstrated by existence of a market or internal usefulness
- Adequate technical, financial and other resources to complete development
- Ability to reliably measure expenditure attributable to the intangible during development
Amortisation: Finite vs Indefinite Useful Life
The amortisation treatment depends on the useful life classification:
| Category | Useful Life | Amortisation | Impairment Testing |
|---|---|---|---|
| Finite useful life | Determinable (years or units of production) | Amortised systematically over useful life; reviewed annually | Only when impairment indicators exist |
| Indefinite useful life | No foreseeable limit to period of economic benefits | NOT amortised | Annual impairment test required (even without indicators) |
Residual value of a finite-life intangible is assumed to be zero unless:
- A third party is committed to buy the asset at end of its useful life, OR
- There is an active market for the asset and residual value can be reliably estimated
Amortisation method: Must reflect the pattern of consumption of expected economic benefits. Straight-line is most common; units-of-production can be used if usage pattern is determinable.
- Capitalised software (development costs): 3–5 years
- Customer relationships (from PPA): 5–15 years
- Patents: remaining legal life or economic life, whichever is shorter
- Drug approvals/ANDAs: economic life (typically 10–20 years)
- Brand names (finite): per contractual/market assessment
- Brand names (indefinite): no amortisation; annual impairment test
Impairment of Intangibles
Impairment of intangibles is governed by Ind AS 36 (Impairment of Assets). Key points:
- Intangibles with indefinite useful life (and goodwill): mandatory annual impairment test regardless of whether indicators exist
- All other intangibles: impairment test only when there is an indicator of impairment
- Impairment loss = Carrying Amount minus Recoverable Amount (higher of value in use and fair value less costs to sell)
- Reversal of impairment allowed for intangibles (except goodwill) if circumstances change and impairment no longer exists
See our Ind AS 36 guide for the full impairment methodology.
Case Study: TCS — Reported Intangible-Asset Balances
TCS: distinguish gross cost, accumulated amortisation and net assets
The audited FY2024–25 consolidated Note 10(c) reports other-intangible gross cost ₹3,134 crore, accumulated amortisation ₹2,194 crore and closing net carrying amount ₹940 crore. Current-year amortisation is ₹727 crore. Goodwill is a separate balance. The note covers software/licensing rights and customer-related intangibles; these figures do not establish that every internally developed product was capitalised.
The calculation ₹3,134 − ₹2,194 = ₹940 explains why gross cost cannot be presented as the balance-sheet carrying value. Recognition of an internal development project still requires the separate Ind AS 38 criteria.
Case Study: Sun Pharma — Drug Discovery R&D
Sun Pharma: actual consolidated R&D expenditure, FY2024–25
Consolidated Note 42, PDF page 272, gives amounts in ₹ million, rather than crore. The consistent conversion is ₹10 million = ₹1 crore.
| Reported component | ₹ million | ₹ crore |
|---|---|---|
| Net revenue R&D, excluding depreciation | 31,342.8 | 3,134.28 |
| Capital R&D | 942.5 | 94.25 |
| Sum of those two disclosed components | 32,285.3 | 3,228.53 |
This total excludes depreciation from the revenue component and must retain that label. Capital R&D is not automatically identical to new intangible-asset recognition: it can include other qualifying capital assets. Research expenditure is expensed; development capitalisation requires all recognition criteria, rather than merely an expectation of approval. The table illustrates actual reported spending without inventing a corresponding intangible balance or useful life.
Case Study: Hindustan Unilever — Acquired Brands & Trademarks
HUL: market value versus reported standalone net worth
HUL’s FY2024–25 report gives ₹49,153 crore standalone net worth at 31 March 2025 in BRSR VI-24 and the standalone balance sheet. Its long-term track record reports ₹5,30,855 crore market capitalisation using year-end BSE closing prices (PDF page 15).
| Comparison on the stated year-end basis | ₹ crore |
|---|---|
| Market capitalisation | 5,30,855 |
| Standalone net worth | 49,153 |
| Arithmetic excess of market value over net worth | 4,81,702 |
The ₹4,81,702 crore difference is not a measured unrecognised brand asset. It can reflect expected future earnings, risk, growth, other assets and liabilities, and recognised acquired intangibles. Ind AS 38 prohibits recognition of internally generated brands; a separately acquired identifiable intangible or a qualifying business-combination asset follows its own recognition and measurement requirements. Brand licensing, ownership and acquisition must be established separately rather than inferred from the product name.
Comparison: Ind AS 38 vs Old IGAAP
- Goodwill from acquisitions could be amortised or written off against reserves
- R&D capitalisation criteria were less rigorous — more flexible
- Useful life of intangibles presumed not to exceed 10 years (rebuttable)
- Indefinite useful life concept less explicitly defined
- Revaluation of intangibles generally not permitted
- Goodwill NOT amortised (Ind AS 103) — annual impairment test only
- Strict research vs development distinction; research always expensed
- No presumptive useful life cap — assessment based on facts
- Indefinite useful life explicitly recognised; no amortisation
- Revaluation model available (requires active market — rare for intangibles)
Key Disclosures Required Under Ind AS 38
Companies must disclose for each class of intangible assets:
- Whether useful lives are finite or indefinite; if finite, the useful lives or amortisation rates
- Amortisation methods used
- Gross carrying amount and accumulated amortisation at beginning and end of period
- Reconciliation of carrying amount — additions, disposals, amortisation, impairment losses
- For indefinite-life intangibles: carrying amount and reasons supporting indefinite life assessment
- Description, carrying amount, and remaining amortisation period of any individually material intangible
- For intangibles acquired in business combinations: fair value and amortisation period
- Amount of research and development expenditure recognised as expense in the period
Frequently Asked Questions
Source and review trail
Use the current official instrument, portal or regulator publication before acting. Page-specific references are listed below.
- Primary category
- Accounting, Audit & Ind AS
- Official starting point
- www.icai.org