An intangible asset is an identifiable nonmonetary asset without physical substance that has value limited to the rights and expected benefits that its possession gives its owner.  An intangible asset is recognized and capitalized only when it meets the following criteria:

  1. It is identifiable and measurable;
  2. The entity has control over it; and
  3. It provides the entity with future economic benefit.

If an intangible item does not meet both the definition of and the criteria for recognition as an intangible asset, the expenditure is recognised as an expense when it is incurred.

An intangible asset is identifiable if it is either separable (i.e., capable of being separated and sold, transferred, licensed, rented or exchanged, either individually or as part of a package) or arises from contractual or other legal rights.  Identifiable intangibles include patents, copyrights, brand names, customer lists, trade names, and other specific rights that, typically, can be transferred without a transfer of the related physical assets.

Purchased intangibles must be recorded at cost on the date of acquisition.  After initial recognition, either the cost or revaluation model is used for measuring each class of intangible asset.  Intangible assets arising from research and internally developed intangibles are generally expensed in the period incurred, not capitalized.  The primary reason for not recording internally developed intangible assets is that there is no objective determination of the actual cost incurred to produce the intangible asset and that no reasonable determination of the future periods benefitting can be made.

Valuation of Intangible Assets – US GAAP vs. IFRS
US GAAP IFRS
Development costs are generally expensed when incurred. Development costs are capitalized when technical and economic feasibility can be demonstrated.
The revaluation of intangible assets and the reversal of impairment losses are prohibited. Allows for periodic revaluation of intangible assets (except for goodwill) to fair value and the reversal of impairment losses

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