General scope

Learning objectives

• Identify whether an intangible item falls within IAS 38 or another Standard (inventories, deferred taxes, leases, financial assets, goodwill).L1, L2
• Determine the applicable Standard from the facts of a mini-case.L2
• Determine whether an item combining tangible and intangible elements (integral software, physical medium) falls within IAS 16 or IAS 38.L2

Normative references

• IAS 38 §2Scope: IAS 38 applies to intangible assets except those within the scope of another Standard, financial assets, exploration and evaluation assets, and expenditure on the development and extraction of non-regenerative resources.
• IAS 38 §3When another Standard prescribes the accounting for a specific type of intangible asset, that Standard applies. IAS 38 therefore does not apply, in particular, to: intangible assets held for sale in the ordinary course of business (IAS 2); deferred tax assets (IAS 12); leases of intangible assets accounted for under IFRS 16; assets arising from employee benefits (IAS 19); financial assets (IAS 32); goodwill acquired in a business combination (IFRS 3); contracts within the scope of IFRS 17; non-current intangible assets classified as held for sale (IFRS 5); assets arising from contracts with customers recognised in accordance with IFRS 15.
• IAS 38 §4Some intangible assets are contained in or on a physical substance (software on a disc, a licence or patent embodied in legal documentation, film). When an asset combines tangible and intangible elements, the entity uses judgement to assess which element is more significant and therefore which Standard applies (IAS 16 or IAS 38). Software for a computer-controlled machine tool that cannot operate without it is an integral part of the related hardware and is treated as property, plant and equipment; the same applies to the operating system of a computer. Software that is not an integral part of the related hardware is an intangible asset.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

15 questions

• A mining company incurs expenditure to evaluate the technical feasibility and commercial viability of extracting a deposit it has obtained the right to explore. It also acquires, for its head office, a licence for geological modelling software. The chief accountant wants to apply IAS 38 to both items, on the grounds that neither has physical substance. What is your answer?L2
• Arvelle holds an intangible item whose accounting treatment is prescribed specifically by a standard other than IAS 38. How does it proceed?L1
• True or false? A software distributor holds digital licences intended for resale in the ordinary course of its business; these licences fall under IAS 2, not IAS 38.L1
• True or false? Since a deferred tax asset has no physical substance, it falls within the scope of IAS 38.L1
• True or false? The mere fact that an intangible asset is internally developed or acquired does not determine whether it falls within the scope of IAS 38: both fall within it, unless they are covered by an exclusion.L2
• Among the following items held by Orvane, which one falls under IAS 38?L1
• Datalys buys software activation codes from publishers and resells them to consumers; this is its ordinary business. Which standard governs these codes while they are held?L2
• Why does IAS 38 not apply to deferred tax assets, even though they have no physical substance?L2
• Which of the following items fall under IAS 38?L1
• At the reporting date, the software publisher Kelvane holds the following items. Which ones are dealt with under a standard other than IAS 38?L2
• The Nordeve group operates natural gas fields. At the reporting date, it reports expenditure on the development and extraction of a new field, predictive maintenance software acquired for its facilities and shares in a drilling company held as an investment, without control or significant influence. The management controller wants to account for all three items under IAS 38, as they lack physical substance. Which analysis do you retain?L2
• The Lumbra studio designs games and also buys game licences from other publishers to resell them to distributors, which is part of its ordinary business. At the reporting date, it holds these licences intended for resale, a deferred tax asset and a game engine licence acquired to design its own games. Which items fall under IAS 38?L2
• Alteris, which develops applications, holds three items without physical substance: a bank term deposit, rights to operate an application it developed and uses to provide its services, and a deferred tax asset. The chief financial officer concludes that only the operating rights fall under IAS 38. Which argument best supports this conclusion?L2
• Ferrandel acquires a computer numerically controlled machining centre. The overall price includes the control software installed by the manufacturer; without this software the machine cannot perform any operation. How should Ferrandel account for the control software?L2
• Bramvelle is equipping its new head office. It buys 40 laptops delivered with their operating system. It also acquires, from another vendor, a licence for management software that it can install on any of its servers and transfer from one machine to another; the software is supplied on a simple USB stick. Which accounting treatment is appropriate?L2