Lesson 1 of 6 · 14 min
Measurement bases and intangible assets
Intangible assets reach the balance sheet only when they are identifiable and their cost can be measured, so purchased intangibles are capitalised while most home-grown ones are expensed, and the useful life decides whether they are amortised or only tested for impairment.
In short
- The balance sheet uses mixed measurement: some items at historical or amortised cost, others at fair value, and some valuable resources are not recognised at all. The notes explain which basis applies.
- An intangible asset is an identifiable, non-monetary asset without physical substance: it can be separated from the entity or arises from contractual or legal rights (patents, licences, trademarks, customer lists).
- IFRS allows a cost model or a revaluation model (the latter only with an active market). US GAAP allows only the cost model.
- Finite life → amortised systematically, method and life reviewed at least annually, impairment as for PP&E. Indefinite life → not amortised; tested for impairment (and the indefinite-life assumption reviewed) at least annually.
- Internally generated: IFRS expenses the research phase and may capitalise the development phase if criteria are met; US GAAP expenses almost all of it. Purchased intangibles are capitalised.
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