Page 6 - 4. COMPILER QB - INDAS 38

benefits, yet the asset has been internally generated; therefore, the Cloud9 brand cannot be recognised as
intangible asset in the financial statements.
In order to determine whether Headspace meets the aforesaid conditions, following provisions of Ind AS 38

regarding ‘Separately acquired Intangible Assets’ should be analyzed.
As per Ind AS 38, normally, the price an entity pays to acquire separately an intangible asset will reflect
expectations about the probability that the expected future economic benefits embodied in the asset will flow
to the entity. In other words, the entity expects there to be an inflow of economic benefits, even if there is
uncertainty about the timing or the amount of the inflow. Therefore, the probability recognition criterion in

paragraph 21(a) is always considered to be satisfied for separately acquired intangible assets. In addition, the
cost of a separately acquired intangible asset can usually be measured reliably. This is particularly so when the
purchase consideration is in the form of cash or other monetary assets.
The Headspace game has been purchased for INR 10,00,000 and it is expected to generate future economic
benefits to the entity. Since Headspace game is a separately acquired asset and the future benefits are

expected to flow to the entity, therefore, an intangible asset should be recognised in respect of the
‘Headspace’ asset at its cost of INR 10,00,000. After initial recognition, either cost model or revaluation model
can be used to measure headspace intangible assets as per guidance given Ind AS 38. In accordance with this,
Headspace intangible asset should be carried at its cost/revalued amount (as the case may be) less any
accumulated amortization and any accumulated impairment losses.

Q6 (May. 20)

X Ltd. purchased a franchise from a restaurant chain at a cost of Rs1,00,00,000 under a contract for a period of
10 years. Can the franchise right be recognised as an intangible asset in the books of X Ltd. under Ind AS 38?
SOLUTION

Ind AS 38 ‘Intangible Assets’, defines asset and intangible asset as under:
An asset is a resource:
(a) Controlled by an entity as a result of past events; and
(b) From which future economic benefits are expected to flow to the entity.
An intangible asset is an identifiable non-monetary asset without physical substance.

In accordance with the above, for considering an asset as an intangible asset, an entity must be able to
demonstrate that the item satisfies the criteria of identifiability, control over a resource and existence of
future economic benefits.
In the given case, the franchise right meets the identifiability criterion as it is arising from contract to
purchase the franchise right for 10 years. In addition, X Ltd. will have future economic benefits and control

over them from the franchise rights. Accordingly, the franchise right meets the definition of intangible asset.
The same can be recognised if the following recognition criteria laid down in para 21 of Ind AS 38 is met:
An intangible asset shall be recognised if, and only if:
(a) it is probable that the expected future economic benefits that are attributable to the asset will flow to the
entity; and

(b) the cost of the asset can be measured reliably.
In the instant case, identifiability criterion is fulfilled, future economic benefits from franchise rights are
expected to flow to the entity and cost can also be measured reliably, therefore, X Ltd. should recognise the
franchise right as an intangible asset.
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