FRS 102 Section 18: intangible assets

Section 18 of FRS 102 lets a business recognise an intangible asset only if it is identifiable, future benefits are probable and its cost can be measured reliably. Bought intangibles nearly always qualify, internally generated ones only through the development phase rules, and a list of items such as internally generated brands and start up costs can never be capitalised. Every intangible has a finite life, capped at 10 years where no reliable estimate is possible, and revaluation is allowed only where there is an active market.

What counts as an intangible asset?

The FRS 102 glossary defines an intangible asset as an identifiable non monetary asset without physical substance. It is identifiable if it is either separable, meaning it could be sold, transferred, licensed, rented or exchanged on its own or with a related contract, asset or liability, or if it arises from contractual or other legal rights, whether or not those rights are transferable.

Section 18 does not cover goodwill (Section 19), intangibles held for sale in the ordinary course of business (Section 13 inventories), assets arising from contracts with customers under Section 23, financial assets, heritage assets or mineral exploration (paragraphs 18.1 and 18.3). Where an item has physical and intangible elements, paragraph 18.3B asks which is more significant. Software a machine cannot run without, and a computer’s operating system, are part of the hardware and fall under Section 17; other software is intangible. More on that boundary is in accounting for website and software development costs.

When can an intangible be recognised?

Paragraph 18.4 sets two conditions: it must be probable that the expected future economic benefits will flow to the entity, and the cost or value must be measurable reliably. Paragraph 18.5 requires the probability to be assessed on reasonable and supportable assumptions, and paragraph 18.6 gives greater weight to external evidence. How the test plays out depends on how the asset arrived:

Route	Rule	Initial measurement
Bought separately	Probability test always treated as met (18.7)	Purchase price including non refundable taxes, less discounts, plus directly attributable costs (18.10)
Acquired in a business combination	Must meet 18.4, be separable and arise from legal or contractual rights; may optionally recognise those meeting only one of the last two (18.8)	Fair value at acquisition date (18.11)
Internally generated	Research expensed; development capitalised only if all six conditions in 18.8H are shown	Directly attributable costs from the date the criteria are first met (18.10A)
Received by way of a grant	Section 24 or Section 34	Fair value when the grant is received or receivable (18.12)
Exchanged for other assets	Commercial substance needed	Fair value, unless neither fair value is reliable (18.13)

The development phase conditions and the policy choice they involve are covered in capitalising development costs, and acquisitions in business combinations and goodwill.

What can never be capitalised?

Paragraph 18.8C requires the following to be expensed and never recognised as intangible assets:

• internally generated brands, logos, publishing titles, customer lists and similar items;
• start up costs, including legal and secretarial costs of setting up a company, pre opening costs of a new facility or business and pre operating costs of launching new products or processes;
• training;
• advertising and promotion, other than items meeting the inventory rule in paragraph 13.4A;
• relocating or reorganising all or part of the entity;
• internally generated goodwill.

Paragraph 18.8D still allows a prepayment to be recognised where a business pays for goods or services before receiving them. Paragraph 18.17 adds that spending on an intangible item that was expensed cannot later be reinstated as part of an asset’s cost, even if the project later succeeds.

Note the asymmetry with brands and customer lists. A business cannot capitalise its own, but if it buys a trademark or a customer list separately it recognises it at cost, because the probability test is treated as met for separately acquired intangibles.

How long should an intangible be amortised over?

Paragraph 18.19 treats every intangible as having a finite useful life. Where the asset arises from contractual or legal rights, the life cannot exceed the period of those rights, though it can be shorter if the business expects to use the asset for less time. Renewal periods count only if there is evidence the business can renew without significant cost. If, in exceptional cases, a reliable estimate of life cannot be made, paragraph 18.20 caps it at 10 years. Company law says the same: Schedule 1 paragraph 22 of the 2008 accounts regulations requires intangibles to be written off over their useful economic life, with a maximum of ten years chosen by the directors where the life cannot be reliably estimated, and the period and reasons disclosed.

Under paragraph 18.22 amortisation starts when the asset is available for use and stops when it is derecognised. The method must reflect the pattern in which benefits are consumed; if that pattern cannot be determined reliably, the straight line method is required. Paragraph 18.23 assumes a residual value of zero unless a third party has committed to buy the asset at the end of its life, or there is an active market that will probably still exist then. Paragraph 18.24 requires lives, methods and residual values to be reviewed when indicators such as technological change suggest they have moved, with any change treated as a change in estimate.

Illustration only. A company pays £60,000 for a five year exclusive distribution licence that cannot be renewed. It also pays £30,000 for a separately acquired customer list, expecting the customers to keep trading with it for about three years. Both have nil residual values.

Asset	Cost £	Life	Annual straight line charge £
Distribution licence	60,000	5 years (limited by the contract)	12,000
Customer list	30,000	3 years (expected use)	10,000

The 10 year cap would not apply to either, because a reliable estimate of life can be made. The cap is for exceptional cases, not a default.

Can intangible assets be revalued?

Yes, but rarely. Paragraph 18.18 allows the revaluation model for a class of intangibles, and paragraph 18.18B allows it only where fair value can be determined by reference to an active market. The glossary defines an active market as one where transactions take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Most brands, patents and licences are unique, so no such market exists. HMRC’s Corporate Intangibles Research and Development Manual at CIRD13050 describes upward revaluations of intangibles as allowed only in extremely limited circumstances.

Where the model is used, the rules mirror those for property, plant and equipment:

• it cannot be used to recognise an intangible not previously recognised, or to recognise one initially at anything other than cost (18.18C);
• revaluations must be regular enough that the carrying amount is not materially different from fair value at the reporting date (18.18D);
• if an asset in a revalued class has no active market, it stays at cost less amortisation and impairment (18.18), and if the market disappears later the last revalued amount is frozen and amortised (18.18E);
• gains go to other comprehensive income unless they reverse an earlier loss charged to profit or loss; losses go to other comprehensive income up to the asset’s accumulated surplus, and the excess to profit or loss (18.18G and 18.18H).

The reserve mechanics are explained in revaluing fixed assets and the revaluation reserve.

What about impairment and disposal?

Paragraph 18.25 applies Section 27. Under paragraph 27.7 the business looks for indications of impairment at each reporting date and estimates recoverable amount only if there is one. An impairment of an intangible other than goodwill is reversed if the reasons for it cease to apply (27.29). On disposal, or when no further benefits are expected, the asset is derecognised and the gain or loss goes to profit or loss (18.26).

What must be disclosed?

For each class, paragraph 18.27 requires useful lives or rates and the reasons for them, the methods used, gross carrying amount and accumulated amortisation, the profit and loss line containing amortisation, and a reconciliation separating additions from internal development and separate acquisition, disposals, business combinations, revaluations, amortisation and impairment. Paragraph 18.28 adds a description, carrying amount and remaining period for any individually material intangible, assets pledged as security and contractual commitments. Paragraph 18.29 requires the aggregate research and development expenditure expensed in the period, and paragraph 18.29A the revaluation details where the revaluation model is used.

How do micro entities and tax treat intangibles?

Micro entities applying FRS 105 cannot recognise any internally generated intangible (paragraph 13.4), and all research and development is expensed (paragraph 13.5). Separately acquired intangibles are carried at cost less amortisation, with the same 10 year cap where life cannot be estimated (paragraphs 13.8 and 13.10). See FRS 105 and micro entity accounts.

For companies, the corporate intangibles regime in Part 8 of the Corporation Tax Act 2009 links tax relief to the accounts, so amortisation and impairment that follow generally accepted accounting practice are usually deductible (CIRD10115). A company can instead elect for fixed rate relief on a particular asset; the election is irrevocable and must be made in writing within two years of the end of the accounting period in which the asset was acquired or created (CIRD12905). Where a revalued intangible has previously been written down for tax, the uplift can bring back past deductions (CIRD13050). The tax side of amortisation is also covered in depreciation methods.

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Sources

• Financial Reporting Council: FRS 102 September 2024 tmKYWO6
• legislation.gov.uk: SI 2008/410, schedule 1
• GOV.UK: Manual page CIRD13050
• Financial Reporting Council: FRS 105 September 2024
• GOV.UK: Manual page CIRD10115
• GOV.UK: Manual page CIRD12905

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.