CHAPTER-IV

ACCOUNTING OF INTANGIBLE ASSETS

Accounting of Intangible assets is a complex and important subject in todays

information and knowledge based economy. For companies, these assets are becoming
basic drivers for achieving competitive success. They constitute a fundamental part of
balance sheet of a company. Accounting of Intangible assets is also vital for their
effective management as there is a famous saying What gets measured gets managed
(Ayuso, 2003a). With a view to report these assets in the financial statements, various
regulatory bodies have issued accounting standards on intangible assets.
Accordingly this chapter is based on an in-depth study of major accounting
standards dealing with intangible assets. It has been divided into two sections. Section-I
introduces different accounting standards presently used for reporting intangible assets
information across globe. Section-II examines, in detail, the similarities and differences
among these standards.
SECTION-I
4.1

INTRODUCTION OF ACCOUNTING STANDARDS ON INTANGIBLE

ASSETS
Over past decades for the purpose of accounting of intangible assets in the

financial statements, several accounting standards have been issued by professional

accounting bodies in different countries. As mentioned by Canibano et al (2000), the
literature has been discussing the topic of accounting and reporting of intangible assets
for a long time. Provisions of these standards used to vary across countries which would
limit the comparability of financial statements in international context (Brunovs and
Kirsh, 1991)
The globalisation of the worlds capital markets sparked a movement for global
standards on intangible assets. The best example of this was the introduction of
47

International Accounting Standard-38 on intangible assets. Following that other countries

have also issued separate accounting standard on intangible assets like AS-26 in India,
SFAS-142 in US, FRS-10 in UK and ASBE-6 in China. These standards address issues
like how and when intangible assets that are acquired or internally generated should be
accounted in the financial statements. They also lay down provisions on how these
intangible assets should be accounted after they have been initially recognised in the
financial statements. A brief history/description of these standards under IFRS, UK, US,
Indian and Chinese GAAP is given below:
International Financial Reporting Standard (IFRS): Under IFRS, International
Accounting Standard-38 (IAS-38) on intangible assets was issued by the International
Accounting Standards Committee (IASC) in September, 1998. The objective of the
standard was to prescribe the accounting treatment for intangible assets that are not dealt
with specifically in another standard. The standard requires an entity to recognise an
intangible asset if, and only if, specified criteria are met. The Standard also specifies how
to measure the carrying amount of intangible assets and requires specified disclosures
about these assets. Accounting treatment for amortisation, impairment, retirements and
disposals have also been explained. Further IASC has also issued International
Accounting Standard 36-Impairment of Assets which discusses the impairment
provisions for goodwill and intangible assets with indefinite life
In April 2001 the International Accounting Standards Board (IASB) adopted all
International Accounting Standards and continued its development, calling the new
standards as IFRS. Subsequently, International Financial Reporting Standard (IFRS) 3 on
Business Combinations was issued in March 2004. IFRS-3 describes the accounting
treatment for intangible assets acquired as a part of business combination. The
introduction of IFRS-3 resulted in an increase in the number of intangible assets
recognised at the time of acquisition.
IASB has issued many IFRS, which are now being used for public reporting
purposes in almost 100 countries ranging from Australia to the United Kingdom.

48

Regulators in India, China and US are likely to converge their local standards with IFRS
by 2011.
US GAAP: Under US GAAP, the accounting and valuation of intangible assets
for financial reporting purposes is governed by The Financial Accounting Standards
Board (FASB). FASB issued the Statement of Financial Accounting Standards No. 142
on goodwill and other intangible assets, in June 2001. The application of the standard was
made mandatory from December 15, 2001. The statement explains in detail the initial
recognition and measurement of intangible assets, treatment for internally generated
intangible assets, accounting for intangible assets, accounting for goodwill, financial
statement presentation of intangible assets and goodwill, and other disclosures.
In addition, FASB has also issued the Statement of Financial Accounting
Standards No. 141 on Business combinations which describes the accounting treatment of
intangible assets acquired as a part of business combination.
Indian GAAP: Accounting Standard-26 on intangible assets was issued in 2002
by the Council of Institute of Chartered Accountants of India, under Indian Generally
accepted Accounting Practices. Its application was made mandatory for all types of
enterprises, with accounting periods commencing on or after 1-4-2004. This standard
covered the similar provisions of initial recognition, measurement, subsequent
expenditure, amortisation, impairment losses, retirements and disposals, and disclosure
like IFRS and US GAAP. Further Accounting Standard-28 on Impairment of Assets
discusses the provisions for impairment of intangible assets.
Chinese GAAP: Under Chinese GAAP, Accounting Standard for Business
Enterprises No.6 on intangible assets was issued by the Ministry of Finance of the
Peoples Republic of China on 15 February, 2006. The standard was made mandatory for
all listed Chinese companies from 1 January, 2007. The standard was made on the lines
of IFRS standard. It explains the definition, initial recognition, measurement, subsequent
measurement, disposal and discarding and disclosure of intangible assets. It also includes
treatment of internal research and development projects. In conjunction to above, ASBE-

49

8 explains the provisions of impairment of intangible assets and ASBE-20 describes the
treatment of intangible assets acquired as a part of business combination.
UK GAAP:

Under UK GAAP, Financial Reporting Standard-10 (FRS-10),

issued by the Accounting Standards Board in December1997, sets out the principles of
accounting for goodwill and intangible assets. The objective of the standard was to ensure
that purchased goodwill and intangible assets are charged in the profit and loss account in
the periods in which they are depleted and also that sufficient information is disclosed in
the financial statements to enable users to determine the impact of goodwill and
intangible assets on the financial position and performance of the reporting entity. FRS10 applies to all financial statements that are intended to give a true and fair view of a
reporting entitys financial position and profit or loss for a period. Reporting entities
applying the Financial Reporting Standard for Smaller entities (FRSSE) are exempt from
the provisions of FRS-10.
SECTION-II
4.2

COMPARISON OF ACCOUNTING STANDARDS ON INTANGIBLE

ASSETS
Accounting Standards issued under IFRS, US GAAP, UK GAAP, Indian GAAP

and Chinese GAAP have been compared in this section in order to understand the
accounting treatment employed for intangible assets. IFRS has been used as a yardstick
for this comparison, as most of the countries are harmonising their national accounting
practices with IFRS. Having IFRS as a basis, is also important as European countries
have adopted IFRS since 1 January, 2005.
Financial Accounting Standard Board of US decided to converge its accounting
standard with IFRS after Norwalk Agreement passed in 2002. This is a very important
step towards global harmonisation of accounting standards which could be achieved by
2011. However until the above convergence (US GAAP with IFRS) is achieved, US
GAAP will continue to have equal significance, and accordingly have been taken as a
category for comparison.
50

Also Chinas contribution to world economy cannot be undermined. This

necessitates the need to understand Chinese accounting standard on intangible assets vis a
vis IFRS
Table 4.1 discusses similarities and divergences in US GAAP, UK GAAP, Indian
GAAP and Chinese GAAP in comparison to the benchmark IFRS. The comparison has
been organised primarily according to different sections relating to definition, initial
recognition, measurement of acquired intangible assets, measurement of internally
generated intangible assets, subsequent measurements, amortisation, impairment,
retirement and disposals of intangible assets, treatment of research and development
expenditure, software developed for internal use and sale. The comparison reflects
standards issued as of march 31, 2007.

51

Table 4.1
Comparison of IFRS, US GAAP, UK GAAP, Indian GAAP and Chinese GAAP on accounting treatment of intangible assets
(A).
S. No.
1)

2)

Definition :
IFRS
An intangible asset is an identifiable non-monetary
asset without physical substance. (IAS 38)

To meet the definition of an intangible assets, an item

must lack physical substance and must be:

identifiable;

non-monetary; and

controlled by the entity and expected to provide

future economic benefits to the entity (i.e., it must
meet the definition of an asset).

US GAAP
Under U.S. GAAP
an intangible assets
is an asset (not
including a financial
asset) that lacks
physical substance.

UK GAAP
Intangible assets are nonfinancial fixed assets that do
not have physical substance
but are identifiable and are
controlled by the entity
through custody or legal
rights.

Indian GAAP
AS 26 defines an intangible
assets as an identifiable
non-monetary asset without
physical substance, held for
use in the production or
supply of goods or services,
for rental to others, or for
administrative purposes.

Chinese GAAP
Intangible assets as per
ASBE no.6 refer to the
identifiable non-monetary
assets possessed or
controlled by enterprises
which have no physical
shape.

Similar to IFRS

Similar to IFRS

Similar to IFRS

Similar to IFRS

An intangible assets is identifiable if it:

is separable, i.e., capable of being separated or
divided and sold, transferred, licensed, rented or
exchanged either individually or together with a
related contract, asset or liability, regardless of
whether there is an intent to do so; or

arises from contractual or other legal rights,

regardless of whether those rights are transferable
or separable from the entity or from other rights
and obligations.

Contd
52

(B).
S. No.
1)

Initial Recognition :
IFRS

US GAAP

An intangible assets is recognised when:

it is probable that future economic

benefits that are attributable to the
asset will flow to the entity; and

Under U.S. GAAP an acquired

identifiable intangible assets is
recognised when:

it is probable that future

economic benefits that are
attributable to the asset
will flow to the entity, like
IFRS; however, unlike
IFRS, this is part of the
definition of an asset
rather than a recognition
criterion; and

fair value can be

measured with sufficient
reliability

the cost of the asset can be

measured reliably.

The cost of an intangible assets acquired in

a separate transition is the fair value of any
consideration given.

UK GAAP

Indian GAAP

Chinese GAAP

Similar to IFRS

Similar to IFRS

Similar to IFRS

Like IFRS, direct-response

advertising
software
developed for internal use and
software developed for sale to
third parities are recognised
initially at cost. Other
intangible assets generally are
recognised at fair value, which
usually equals the fair value of
the consideration given.

Contd

53

(C).

Measurement Acquired Intangibles :

S. No.

IFRS

1)

The cost of a separately acquired

intangible asset at the date of acquisitions

US GAAP

UK GAAP

Indian GAAP

Chinese GAAP

Similar to IFRS

Similar to IFRS

Similar to IFRS

Similar to IFRS

is usually self-evident, being the fair value

of the consideration paid.

(D).

Measurement Internally Generated Intangibles :

S. No.
1)

IFRS

US GAAP

The cost comprises all expenditures that

Costs of internally developing,

Internally

generated

can be directly attributed or allocated to

maintaining

intangibles,

excluding

creating producing and preparing the

intangible assets that are not

development costs, may be

asset from the date when the recognition

specifically

capitalised only if they have

criteria are met.

have indeterminable lives, or

that are inherent in a continuing

market value.

or

UK GAAP
restoring

identifiable,

that

readily

Indian GAAP

Chinese GAAP

Similar to IFRS

Similar to IFRS

ascertainable

business and related to an entity

as a whole, are recognised as
an expense when incurred.

Contd

54

(E).

Subsequent Measurement Acquired And Internally Generated Intangibles :

S. No.
1)

IFRS

US GAAP

Intangible assets subject to amortisation Initial recognition is similar to IFRS.

are carried at historical costs less Revaluation
accumulated amortisation/ impairment, or Intangible
at

fair

amortisation/

value

less

impairment.

subsequent amortisation

is

not

allowed.

UK GAAP

Indian GAAP

Similar to IFRS

Initial recognition is similar

to IFRS. Revaluation is not Initial

assets

subject

to

allowed.

are

carried

at

assets

Intangible amortised costs less impairment.

assets not subject to amortisation are Intangible assets not subject to

Chinese GAAP

All
are

amortised

recognition

intangible similar
carried

costs

at Revaluation

to

is

IFRS.
is

not

less allowed.

impairment.

carried at historical costs unless impaired. amortisation are carried at historical

A subsequent revaluation of intangible costs less impairment.
asset to their fair value is based on prices
in an active market. Revaluations are
performed regularly and for the entire
class of intangible assets at the same
time if an entity adopts this treatment
(extremely rare in practice).
Contd

55

(F).
S. No.
1)

2)

Amortisation :
IFRS

US GAAP

UK GAAP

Indian GAAP

Acquired goodwill is not amortised, but

instead is subject to impairment
testing at least annually

Like IFRS, acquired goodwill is not

amortised, but instead is subject to
impairment testing at least annually;
the method of impairment testing
differs in certain respects from IFRS.

Acquired
goodwill
is
amortised within 20 years
unless indefinite useful life
is permitted in which case
annual impairment testing
is required.

The useful life of intangible assets

other than goodwill is either finite or
indefinite. Intangibles with indefinite
useful lives are not amortised, but
instead are subject to impairment
testing at least annually.

Like IFRS, the useful life of intangible

assets other than goodwill is either
finite or indefinite. Like IFRS,
intangibles with indefinite useful lives
are not amortised, but instead are
subject to impairment testing at least
annually; the method of impairment
testing differs in certain respects
from IFRS.

Unlike IFRS and US GAAP,

the useful life of an
intangible assets cannot
exceed 20 years from the
date the asset is available
for use

Goodwill
arising
on
amalgamation in the nature
of purchase is amortised
over five years. Goodwill
arising on acquisition is not
amortised but is tested for
impairment.
Unlike IFRS and US GAAP,
the useful life of an
intangible asset cannot
exceed 10 years from the
date the asset is available
for use.

Similar to IFRS

Similar to IFRS

An intangible asset has an indefinite

useful life when there is no
foreseeable limit to the period over
which the asset is expected to
generate net cash inflows for the
entity.

3)

An intangible asset with a finite life is

amortised on a systematic basis over
its useful life.

Chinese GAAP

Similar to IFRS

Similar to IFRS

Like IFRS, an intangible asset has

an indefinite useful life when there is
no foreseeable limit to the period
over which the asset is expected to
generate net cash inflows for the
entity.
Similar to IFRS

Similar to IFRS

Contd

56

S. No.

IFRS

US GAAP

UK
GAAP
Similar to
IFRS

Indian
GAAP
Similar to
IFRS

Chinese
GAAP
Similar to
IFRS

4)

A change in useful life is accounted for prospectively as

a change in accounting estimate. The amortisable
amount of an intangible asset with a finite useful life is
determined after deducting its residual value. The
residual value of an intangible assets is the amount that
could be obtained at the reporting date for an intangible
assets currently in the condition that the subject
intangible assets is expected to be in on its expected
disposal date, less the estimated costs of disposal.

Similar to IFRS

5)

The residual value of an intangible assets with a finite

useful life is assumed to be zero unless a third party
has committed to buy the asset at the end of its useful
life, or there is an active market from which a residual
value can be obtained and it is probable that such a
market will exist at the end of the asset's useful life.

Unlike IFRS, the residual value of an intangible asset with a finite

useful life can be demonstrated to be an amount other than zero
when there are transactions observed with sufficient frequency, even
if it does not constitute an active market.

Similar to
IFRS

Similar to
IFRS

Similar to
IFRS

6)

When control of an intangible assets is based on legal

rights that have been granted for a finite period, the
useful life cannot exceed that period unless:
the legal rights are renewable;
there is evidence to support that they will be renewed;
and
the cost of renewal of such rights is not significant

The useful life of an intangible assets is based on an analysis of all

pertinent factors, including:
whether the legal rights are renewable;
the expected use of the asset by the entity;
the expected useful life of another asset or group of assets to which
the intangible assets may relate;
legal, regulatory, or contractual requirements that may limit the life;
any legal, regulatory, or contractual requirements that enable
renewal or extension of the asset's legal or contractual life without
substantial cost or material modifications;
the effects of obsolescence, demand, competition or other
economic factors; and
the level of maintenance expenditure required to obtain the
expected future cash flows from the asset.
These factors, while consistent with the requirements of IFRS, are
more detailed and therefore differences may arise in practice.

Similar to
IFRS

Similar to
IFRS

Similar to
IFRS

Contd..
57

IFRS

US GAAP

UK
GAAP

Indian
GAAP

Chinese
GAAP

7)

The method of amortisation, which should be reviewed

at each reporting date, reflects the pattern of
consumption of the economic benefits. If the pattern in
which the asset's economic benefits are consumed
cannot be determined, then the straight-line method is
used. There rarely will be persuasive evidence to
support an amortisation method that results in a lower
amount of accumulated amortisation than would have
been recognised had the straight-line method been
used.

Unlike IFRS, there is no requirement to review the method of

amortisation at each reporting date; rather, it is reviewed whenever
events or changes in circumstances indicate that the current
estimate is no longer appropriate. Like IFRS, the method of
amortisation should reflect the pattern of consumption of the
economic benefits. Like IFRS, if that pattern cannot be determined
reliably, then the straight-line method is used. Unlike IFRS, U.S.
GAAP does not have a presumption that amortisation should at least
equal to the amount that would be recognised using the straight-line
method.

Similar to
IFRS

Similar to
IFRS

Similar to
IFRS

8)

The amortisation of intangible assets with finite lives

begins when the intangible assets is available for use
(i.e., when it is in the location and condition necessary
for it to be capable of operating in the manner intended
by management), which may be prior to the asset being
brought into use.

Similar to IFRS

Similar to
IFRS

Similar to
IFRS

Similar to
IFRS

9)

Amortisation ceases at the earlier of the date that the

asset is classified as held for sale or is derecognised.

Similar to IFRS

Similar to
IFRS

Similar to
IFRS

Similar to
IFRS

S. No.

Contd

58

(G).
S. No.
1)

(H).
S. No.
1)

2)

Impairment Acquired And Internally Generated Intangibles :

IFRS
IAS 38 does not require any
impairment testing unless there are
indications of impairment. Impairment
reviews are required whenever
changes in events or circumstances
indicate that an intangible assets
carrying amount may not be
recoverable. Annual reviews are
required for intangible assets with
indefinite useful lives and for assets
not yet ready for use. Reversals of
impairment losses are allowed under
specific circumstances.

US GAAP
Similar to IFRS, except reversal of
impairment losses are not allowed,
and in-definitive lived intangible
assets are tested for impairment
separately from the reporting unit.

UK GAAP
Similar to IFRS, except that
annual
impairment
is
required for assets with
amortised life exceeding 20
years or indefinite life

Indian GAAP
Similar to IFRS, except that
AS 26 requires test of
impairment to be applied
even if there are no
indications of that asset is
impaired
for following
assets:
Intangible assets not
yet available for use;
Intangible
assets
amortised over more
than 10 years.

Chinese GAAP

IFRS
When an intangible assets is disposed
of or when no further economic
benefits are expected from its use, the
gain or loss is the difference between
any net proceeds received and the
carrying amount of the asset. Any
attributable revaluation surplus may
be transferred to retained earnings or
may remain in the revaluation reserve,
but is not recognised in profit or loss.

US GAAP
Like IFRS, when an intangible
assets is disposed of or when no
further economic benefits are
expected from its use, the gain or
loss is the difference between any
net proceeds received and the
carrying amount of the asset. Unlike
IFRS, the revaluation model is not
permitted and therefore no
revaluation surplus arises.

UK GAAP

Indian GAAP

Chinese GAAP

Silent on this

Similar to US GAAP

Similar to US GAAP

Under IAS 38 if an intangible asset is

held for sale then amortisation should
stop.

Like IFRS, amortisation should stop

if intangible assets is held for sale

There is no such stipulation

under AS26

There is no such stipulation

under AS26.

There is no such
stipulation under ASBE 6.

Similar to IFRS except

reversal of impairment
losses are prohibited.

Retirement And Disposals :

Contd

59

(I). Research And Development:

S.
No.

IFRS

US GAAP

UK GAAP

1) Research is original and planned investigation

undertaken with the prospect of gaining new knowledge
and understanding. Development is the application of
research findings or other knowledge to a plan or design
for the production of new or substantially improved
materials, products, processes etc. Development does
not include the maintenance or enhancement of ongoing
operations.

Research is planned search or

critical investigation aimed at the
discovery of new knowledge with
the hope that such knowledge will
be useful in developing a new
product or service or a new
process or technique or in bringing
about a significant improvement to
an existing product, service,
process
or
technique.
Development is the translation of
research findings or other
knowledge into a plan or design
for a new product, service,
process or technique whether
intended for sale or use.

Research is experimental or
theoretical work undertaken
primarily to acquire new
scientific
or
technical
knowledge for its own sake.
Development is use of
scientific
or
technical
knowledge to produce new or
substantially
improved
materials, devices, products or
services prior to commercial
production or commercial
applications or to improving
substantially those already
produced or installed.

2) Research costs generally are expensed as incurred.

Like IFRS, research costs

generally are expensed as
incurred.

3) If an internally generated intangible assets arises from

the development phase of a project, then directly
attributable expenditure is capitalised from the date that
the entity is able to demonstrate:
the technical feasibility of completing the intangible
assets so that it will be available for use or sale;
its intention to complete the intangible assets and use
or sell it;

Unlike IFRS, with the exception of

certain
internally
developed
computer software and directresponse advertising, all other
development costs are expensed
as incurred.

Similar to IFRS
Similar to IFRS except that
capitalisation of development
expenditure is voluntary.

Indian
GAAP
Similar to
IFRS

Chinese GAAP
The term "research" refers
to the creative and planned
investigation to acquire and
understand new scientific
or technological knowledge.
The term "development"
refers to the application of
research achievements
and other knowledge to a
certain plan or design, prior
to the commercial
production or use, so as to
produce any new material,
device or product, or
substantially
improved
material,
device
and
product.

Similar to
IFRS

Similar to IFRS

Similar to
IFRS

Similar to IFRS

Cont
60

S.
No.

IFRS
its ability to use or sell the intangible assets;
how the intangible assets will generate probable future
economic benefits; the entity must demonstrate the
existence of a market for the output of the intangible
assets or the intangible assets itself or, if it is to be used
internally, the usefulness of the intangible assets;
the availability of adequate technical, financial and
other resources to complete the development of, and to
use or sell, the intangible assets; and
its ability to measure reliably the expenditure
attributable to the intangible assets during its
development.
Development Costs initially recognised as an expense
cannot be capitalised in a subsequent period.
4) If an entity acquires in-process research and
development separately or in a business combination,
then it is recognised as an intangible asset if it meets the
definition of an intangible assets and its fair value can be
measured reliably.

5) Expenditure on internally generated intangible assets

such as brands, mastheads, publishing titles, customer
lists and similar items cannot be capitalised.

US GAAP

Like IFRS, in-process research

and development acquired in a
business
combination
is
recognised initially at fair value in
the
consolidated
financial
statements of the acquirer.
However, unlike IFRS, the inprocess
research
and
development is recognised as an
expense immediately after the
acquisition unless the asset has
alternative future use, either in
other research and development
projects or otherwise.
Similar to IFRS

UK GAAP

FRS-10 is silent on this

Similar to IFRS

Indian
GAAP

AS 26 is
silent on
this.

Similar to
IFRS

Chinese GAAP

ASBE no. 6 is silent on this.

Similar to IFRS

Contd

61

(J).
S. No.
1)

Software Developed For Sale :

IFRS

US GAAP

UK GAAP

Indian GAAP

Chinese GAAP

There are no special requirements for

Unlike IFRS, there are special requirements for software

Similar to IFRS

Similar to IFRS

Similar to IFRS

software developed for sale. Costs of

developed to be sold. Costs incurred internally in creating a

software developed for sale are

computer software product to be sold, leased or otherwise

accounted for following the general

marketed as a separate product or as part of a product or

principles for internally generated

process are research and development costs that are

intangible assets

expensed as incurred until technological feasibility has been

established for the product. Technological feasibility is
established upon completion of a detailed programme and
product design, or in the absence of the former, completion of
a working model whose consistency with the product design
has been confirmed through testing. Thereafter all software
development costs incurred up to the point of general release
of the product to customers are capitalised and reported
subsequently at the lower of amortised cost and net realisable
value. Although the technological feasibility capitalisation
threshold is similar to the general recognition principles for
internally generated intangible assets under IFRS, because the
precise language under U.S. GAAP differs from IFRS, it is
possible that differences may arise in practice.

Contd
62

(K).
S. No.
1)

Internal Use Software :

IFRS

US GAAP

There are no special requirements for

the development of internal-use
software. The costs of internal-use
software are accounted for under the
general principles for internally
generated intangible assets or, in the
case of purchased software, following
the general requirements for
intangible assets.

Unlike IFRS, there are special requirements for the development

of internal-use software. Costs incurred for internal-use software
that is acquired, internally developed or modified solely to meet
the entity's internal needs are capitalised depending on the stage
of development. The stages of software development are the
preliminary project stage, application development stage and postimplementation / operation stage. Costs incurred during the
preliminary project stage and the post-implementation / operation
stage are expensed as incurred.
Costs incurred in the application development stage that are
capitalised include only:
external direct costs of materials and services consumed in
developing or obtaining internal-use software;
payroll and payroll-related costs for employees who are directly
associated with and who devote time to the internal-use software
project; and
interest incurred during development.
General administrative and overhead costs are expensed as
incurred.
The application development stage, which is necessary to
commence capitalising costs under U.S. GAAP, often will occur
sooner than the date that the criteria for capitalising development
costs under IFRS are met. Therefore both the timing of
commencing capitalisation and the amounts capitalised are likely
to be different from IFRS.

UK GAAP

Indian GAAP

Chinese GAAP

Similar to IFRS

Similar to IFRS

Similar to IFRS

Contd
63

(L).

Website Development Costs :

S. No.

IFRS

US GAAP

UK GAAP

Indian GAAP

Chinese GAAP

Costs associated with Web sites

Unlike IFRS, Web site development

Costs

developed

or

costs are subject to the same

planning stage are expensed.

promotional purposes are expensed

general capitalisation criteria as

Costs for activities during the

as incurred. For other Web sites,

internal-use

expenditure

incurred

the

costs incurred during the application

infrastructure

application

and

infrastructure

development stage are capitalised.

stages are capitalised, and costs

development stage, the graphical

U.S.

incurred during the operation

design

guidance on the activities deemed to

1)
for

stage

advertising

and

during

the

content

GAAP

provides

detailed

be

the

capitalising

development stage for Web site

development costs are met. The costs

development. Unlike IFRS, U.S.

of developing content for advertising

GAAP does not provide guidance on

or

the accounting for the costs of

promotional

for

purposes

expensed as incurred.

are

the

Therefore

development stage are capitalised if

criteria

within

software.

FRS 10 is Silent on this

incurred

websites

during

application

the

and

development

ASBE no. 6 is silent on

this.

stage are expensed as incurred.

application

developing content for Web sites,

and therefore differences from IFRS
may arise in practice

Contd

64

(M).

Goodwill :

S. No.

IFRS

1)

Goodwill is recognised only in a business

combination and is capitalised. It is

US GAAP

UK GAAP

Indian GAAP

Chinese GAAP

Similar to IFRS

Similar to IFRS

Similar to IFRS

Similar to IFRS

UK GAAP

Indian GAAP

Chinese GAAP

Silent on this

Similar to IFRS

Similar to IFRS

measured as a residual.

(N).

Items That Are Expensed As Incurred :

S. No.
1)

IFRS
Expenditure

US GAAP
the

Like

as

associated with the following

incurred regardless of whether the

costs are expensed as incurred

general criteria for recognition appear to

regardless of whether the general

be met:

criteria for recognition appear to

internally generated goodwill;

be met:

start-up costs unless, they qualify for

internally generated goodwill;

recognition as part of the cost of

start-up costs, unless they

property, plant and equipment ;

qualify for recognition as part of

training activities;

the cost of property, plant and

advertising and promotional activities;

equipment; and

and

training activities.

following

associated

costs

expenditure

are

on

with

expensed

relocating

reorganising part, or all, of an entity

or

Unlike

IFRS,

IFRS,

advertising

expenditure

direct-response
expenditure

is

capitalised if certain criteria are

met

Contd
65

(O).

Direct Response Advertising :

S. No.

IFRS

US GAAP

1)

There are no special requirements for

Unlike IFRS, the cost of direct-

direct-response

response

advertising,

expenditure is expensed as incurred.

and

UK GAAP

advertising

Indian GAAP

Chinese GAAP

Similar to IFRS

Similar to IFRS

is

capitalised if both of the following

criteria are met:
the primary purpose is to elicit
sales from customers who can be
shown

to

have

responded

specifically to that advertising;

and
there is persuasive evidence,
including historical patterns, that
the advertising will result in
probable

future

economic

benefits.
The amortisation of the deferred
costs should be pro rata to the
related revenue recognition.

66

Similar to IFRS

4.3

CONCLUSION
The following conclusions can be drawn from the above:

1.

International Accounting Standard-38 (IAS-38) on intangible assets was

issued by the International Accounting Standards Committee (IASC) in
September, 1998. Other countries have also issued separate accounting
standard on intangible assets like AS-26 in India, SFAS-142 in US, FRS-10 in
UK and ASBE-6 in China.

2.

International financial reporting Standard (IAS-38) has been used as a

yardstick for the comparison of accounting standards as most of the countries
are harmonising their national accounting practices with IFRS. All European
countries have adopted IFRS since 1 January, 2005.

3.

IAS 38 (IASB), FAS 142 (US GAAP), FRS 10 (UK GAAP), AS 26 (Indian
GAAP) and ASBE 6 (Chinese GAAP), all cover many of the same topics, and
reach the same conclusions on many issues.

4.

As per IFRS, US GAAP and Chinese GAAP intangible assets can be of

definite or indefinite life. On the other end Indian GAAP and UK GAAP
differs and has a rebuttable presumption of maximum useful life being 10 and
20 years respectively.

5.

Under US GAAP except some software and website development cost all
research and development costs are expensed, unlike IFRS, UK GAAP, Indian
GAAP and Chinese GAAP. On the other hand, IAS 38, FRS 10, AS 26 and
ASEB 6 allow for capitalization of all development costs when specific
criteria are met, contrary to US GAAP.

6.

Only IFRS and UK GAAP allow the revaluation of intangible assets out of the
pool of other accounting standards compared.

7.

The only significant difference between IAS 38 and FRS-10 relates to

capitalization of development costs. Where the capitalization of development
costs is compulsory under IAS 38 if certain criteria are met, it is optional
under FRS 10. Further, in terms of the treatment of goodwill after initial
measurement, IFRS-3 on Business combinations requires that goodwill should
be subject to annual impairment reviews, but should not be amortized. While
under FRS 10 there is a rebuttable presumption that the useful life of goodwill
does not exceed 20 years, with amortization over the useful life.

67