Carry phase

Residual value for an AI intangible

Carry

The residual value of an intangible asset is assumed to be zero unless a third party has committed to buy it at the end of its useful life, or there is an active market from which a residual can be determined IAS 38 §100. For a bespoke token-built model neither usually holds, so residual value is almost always zero and the whole cost is amortised.

The default is zero

IAS 38 sets a strong default: the residual value of a finite-life intangible is zero unless one of two narrow conditions is met IAS 38 §100. This is because most intangibles have no value once they are no longer used by the entity. A token-built model, whose value is tied to a specific and quickly ageing capability, fits the default squarely.

The two exceptions

A third party has committed to purchase the asset at the end of its useful life.
There is an active market for the asset and residual value can be determined by reference to it, and that market is expected to exist at the end of the useful life.

Bespoke internal models generally satisfy neither: there is no committed buyer and no active market for a company-specific fine-tune. So the exception is theoretical for most token-built assets, and residual value stays zero.

Effect on the amortisable amount

The amortisable amount is cost less residual value IAS 38 §97. With residual value at zero, the amortisable amount equals cost, so the entire carrying amount is charged over the useful life. That is why the ladders on this site descend to zero at the end of life unless an impairment intervenes first.

Reviewing residual value

Like useful life and method, residual value is reviewed at least at each year-end, and a change is a change in accounting estimate applied prospectively IAS 38 §104. In practice, for an AI intangible the review usually confirms zero, so the review is brief but should still be recorded.