Intangible assets and goodwill under FRS 102

This helpsheet has been issued by ICAEW’s Technical Advisory Service to help ICAEW members understand key aspects of accounting for intangible assets and goodwill under FRS 102.

This helpsheet includes references to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (September 2024) (‘new FRS 102’) which is effective for accounting periods beginning on or after 1 January 2026 (except for paragraphs 7.20B and 7.20C which are effective for accounting periods beginning on or after 1 January 2025). This helpsheet also includes references to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (January 2022) (‘old FRS 102’) which was effective for accounting periods beginning on or after 1 January 2019, or 1 January 2017 for small entities applying Section 1A, following the Triennial review 2017.

Members may also wish to refer to the following related helpsheets:

• Can I revalue an intangible asset under FRS 102?
• Can I capitalise website development costs under FRS 102?

Where intangible assets acquired in a business combination meet all three conditions set out in old and new FRS 102 paragraph 18.8(a) – (c) (described below), the intangible asset must be recognised separately from goodwill. Where either (a) and (b) only, or (a) and (c) only, are met the entity may (but does not have to) elect to separately recognise the intangible asset from goodwill.

FRS 102 has no specific requirements in respect of software development or website development costs. As such, the general principles of Sections 17 and 18 should be applied.

For example, if a piece of software is developed purely to enable a piece of hardware to function in the manner intended, it could be argued that this software is part of the directly attributable costs of the underlying hardware and should be included in the cost of the tangible fixed asset.

However, this is frequently not the case. Where software is developed – or a website created – with any other purpose, it would seem most appropriate to apply the requirements of Section 18 in relation to internally developed intangible assets.

Guidance on the criteria for capitalising website development costs is available in the helpsheet Can I capitalise website development costs under FRS 102?.

Old and new FRS 102 requires that intangible assets are carried either under the cost model (i.e. at cost less any accumulated amortisation and any accumulated impairment losses) or under the revaluation model (see Revaluation of intangible assets section below).

Under both models amortisation must be charged and this amortisation begins when the intangible asset is available for use, i.e. when it is in the location and condition necessary for it to be usable in the manner intended by management (old and new FRS paragaph 102 18.22).

Maximum useful life

Intangible assets and goodwill cannot be attributed indefinite useful lives – they must be amortised. Where an entity, in exceptional cases, cannot determine a reliable estimate of the useful life of an intangible asset, the life shall not exceed 10 years (old and new FRS 102 paragraph 18.20). In most cases, it should be possible to estimate the useful life of an intangible asset or of goodwill.

Residual value

Old and new FRS 102 paragraph 18.23 states that an entity shall assume that the residual value of an intangible asset is zero unless:

• a third party has committed to purchase the asset at the end of its useful life; or
• there is an active market for the asset from which the residual value can be determined and it is probable that such a market will be in existence at the end of the asset’s useful life.

In theory, it is possible to apply the revaluation model to intangible assets other than goodwill. Whilst it is rarely feasible in practice, it may be an option for some intangible assets, for example fishing quotas or taxi licences. Further consideration of this issue can be found in the helpsheet Can I revalue intangible assets under FRS 102?.

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Technical Advisory Service on +44 (0)1908 248 250 or via webchat.