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If you own a business or prepare the financial statements for a business, it is important to understand the implications when classifying assets. Classifying tangible and intangible assets are crucial for valuation and tax purposes. Intangible assets are non-monetary assets that do not physically exist. They can therefore often be difficult to recognise and measure.  

Classifying intangible assets in financial statements can provide significant value to your business. However, in doing so, you must adhere to the strict accounting standards in Australia.

What are the Accounting Standards?

The Australian Accounting Standards Board (AASB) is a Commonwealth Government body that regulates the accounting standards by providing requirements that companies, not-for-profit entities and the public sector must follow. The AASB develops standards and interpretations that set out required accounting for particular transactions and events that affect the financial statements of a business.

Information presented through financial statements in compliance with accounting standards ensures transparency of a business. Further, it allows stakeholders to evaluate and then make crucial decisions.

What is AASB 138?

AASB 138 sets out the definition of an intangible asset. AASB 138 incorporates IAS 38 (Intangible Assets) as issued by the International Accounting Standards Board (IASB). AASB 138 specifies how to recognise an intangible asset, how to measure the intangible assets, and sets out the requirements for disclosing intangible assets.

Recognition – are your assets intangible?

You must consider the following factors when classifying an asset as intangible under AASB 138.

Identifiability For an asset to be identifiable, the asset must be able to either be separated from the business or must arise from a legal document (such as a contract) or legal right (such as a trade mark).
Non-Monetary An intangible asset must be non-monetary, in the sense that you cannot value it in fixed or determinable amounts of money.
Lack of Physical Substance There must be a lack of physical substance for an asset to be classified as intangible. Therefore it is something that you cannot physically touch or hold. For example, a trade mark is not physical.
Control You must be able to exert a level of control over the asset and what happens to it. Whether you have control over the asset also depends on whether you have the power to obtain future economic benefits. Further, you should be able to prevent others from obtaining any economic benefits.
Future Economic Benefit Another vital factor to consider is the future economic benefits of the asset. It is essential to be able to determine that the asset will result in the flow of future economic benefits of the asset. Further, you should be able to measure such future economic benefits reliably. Future economic benefits may include revenue from selling products or services and saving costs.


Examples of intangible assets include software, patents, copyrights, mortgage servicing rights, franchises, customer or supplier relationships, customer loyalty, market share and marketing rights. However, not all intangible assets necessarily meet the definition of an intangible asset under AASB 138. It is therefore important to consider all factors per AASB 138. For example, brands, publishing titles, customer lists and the generation of internal goodwill are not recognised as assets.

Measurement and Disclosure

According to AASB138, you should initially measure all assets via cost. After recognising an asset as intangible per the factors under AASB 138, you can measure such asset via either a cost or revaluation model. Specifics of each model are set out under AASB 138.

AASB 138 also requires you to disclose information for each class of your intangible assets, distinguishing between intangible assets through internal generation and other intangible assets.

Key Takeaways

If you do not accurately identify, measure and disclose information about your assets on financial statements, they may be expensed rather than capitalised. In turn, this may affect your profits and tax. The way in which you classify your assets also impacts the value of your business. Classifying your intangible assets ensures that you can include them in the financial statements. Doing so can increase the value of your business.

As a business owner, it is important to be aware of how classifying your assets can affect your business. AASB 138 sets out the necessary considerations in determining whether you can classify assets as intangible. Consequently, the inclusion of such assets can ultimately ensure a rise in the value of your business.

If you have any questions about identifying assets, and the importance of intangible assets, or need advice for your business, get in touch with one of LegalVision’s business lawyers on 1300 455 755.


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