Identifiable intangible asset

IAS 38 bars a company from capitalising internally generated brands, mastheads, customer lists and items similar in substance, on the ground that nobody can reliably measure what a marketing budget produced. So a company that spent decades building a brand carries nothing at all for it on its own balance sheet.

An acquisition changes that. IFRS 3 requires the buyer to recognise those same items at fair value where they are separable, meaning they could be sold on their own, or where they arise from a contract or a legal right. The usual categories are brands and trade names, customer relationships, developed technology, order backlog and non compete undertakings given by selling shareholders.

Each is then amortised over its useful life, which is the assumption that matters most and the one an outsider cannot check. The same 200 of customer relationships written off over ten years or over twenty produces very different reported earnings for a decade. Some trade names are judged to have an indefinite life, in which case they carry no amortisation and are tested for impairment instead, exactly as goodwill is.

The allocation choice therefore has consequences beyond bookkeeping. Putting more of the price into amortisable intangibles rather than goodwill lowers reported earnings for years, which is why acquirers guide to figures that exclude the charge and why an analyst should read the allocation footnote rather than the headline.