AS-26

Intangible Assets

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 Features of Intangible Assets

 Valuation/Recognition of Intangible Assets

▪ Acquisition by way of Purchase

▪ Acquisition by way of Amalgamation


Acquisition by way of Government Grant

 Acquisition by way of Exchange for another ass

 Acquisition by way of Exchange for shares or o

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 Self-Generated Intangible Assets
 Research Phase
 Development Phase
 Conditions for beginning of Development Stage
 Secondary Recognition
 Amortisation of Intangible Asset
 Method of amortisation (in order of preference)
 Life of amortisation
 Scrap Value

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 Features of Intangible
Assets
1. Without Physical Substance
2. Non-Monetary Asset
3. For Future Economic Benefits
4. Under the Control of Entity
5. Should Have Identifiable Cost

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 Valuation/Recognition of
Intangible Assets

1. Primary Recognition
(a) Acquired Intangible Assets
(b)
Self-Generated Intangible Assets
2. Secondary Recognition

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 Acquisition by way of

Acquisition by way of Purchase

Acquisition by way of Amalgamation

Acquisition by way of Government Grant

Acquisition by way of Exchange for

another asset

Acquisition by way of Exchange for shares

or other securities

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 Acquisition by way of Purchase

 Purchase Cost
 - Trade discount
 + Taxes on purchase
 - Refundable Taxes
 + Installation Expenses
 + Expenses on Valuation
 + Any other directly attributable expense
to make the asset ready for its intended use
(e.g. professional fees or legal charges for
aquisition of asset)

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Acquisition by way of Amalgamation

 Amalgamation in the  Amalgamation in the

nature of Merger nature of Purchase
► at Book value ☞Fai r Value of
Int ang ible asse t
1. Can be i dent ifi ed
► at Fai r Va lue
2. Can’t be ident ifi ed
► at such v alue
due to whi ch
capi tal rese rve
do es no t ar ise o r
incr ease
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Acquisition by way of Government Grant

 at Nominal Value

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 Acquisition by way of Exchange for another asset

 at Fair Value of asset obtained or

 at Fair Value of asset surrendered
 whichever is more clearly evident.

Note: if Fair Value is not clearly evident then

consider lower value as value of intangible
asset.

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Acquisition by way of Exchange for shares or other securities

 at Fair Value of asset obtained or

 at Fair Value of securities issued
 whichever is more clearly evident.

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 Self-Generated Intangible
Assets
Following self-generated intangible asset
are not to be recognised because their cost
can’t be reliably measured.
4. Brand name
5. Copyright
6. Trademark
7. Goodwill
8. Publishing titles
9. Mastheads
10. Marketing or franchise rights

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▪ Remaining self-generated intangible assets
will be recognised.
▪ Expenditure on self-generated intangible asset
is incurred in two phases.
 Research Phase
 Development Phase

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 Research Phase
Research Expenditure
Research expenditure means planned
expenditure for gaining knowledge.
Expenditure during research phase will be
charged to P&L A/c. It can never be
reinstated as asset in future.

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 Development Phase
Development Expenditure
Development expenditure means expenditure
incurred on application of already gained
knowledge.
Expenditure during development phase will be
capitalised as intangible asset till such asset is
ready for use.
Maximum capitalisation <= Future Economic
Benefits
Amount to be transferred to P&L A/c
= Amount already capitalised + Expenditure
incurred - Future Economic Benefits

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 Following items are not capitalised

1. Staff training expense

2. Abnormal losses
3. Share of allocated overhead

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 Conditions for beginning of
Development Stage

1. Technical feasibility
2. Intention
3. Resources
4. Future Economic Benefits

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 Secondary Recognition
 Secondary Expenditure
Secondary Expenditure

If it can be measured If it can’t be measured

Whether such expenditure improves

the performance of the asset Not recognised
beyond standard performance

yes no

Capitalised Transfer to P&L A/c

However, it is encouraged to write-off

such expenditure to P&L A/c

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 Amortisation of Intangible
Asset

Amortisation of Intangible asset

Method of amortisation
Life of amortisation Scrap Value
(in order of preference)

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 Method of amortisation
(in order of preference)
 Production unit method
 SLM method
 WDV method

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 Life of amortisation
 Over a period of 10 years (including
goodwill)
 3-5 years for software/website
 As per AS-14 goodwill due to
amalgamation will be written-off over a
period of 5 years

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 Life of amortisation
★ Higher life can be considered if justified.
▪ Justification to be given in notes to
accounts.
▪ Such higher life is considered as an
indicator of impairment loss.
▪ If justification is not provided then
Valuation as per AS-26 less: Book Value
= written-off against opening revenue
reserve
▪ If any intangible asset is not used, it is also
an indicator of impairment loss.

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 Scrap Value

Method of depreciation

SLM WDV

Scrap Value will be taken as nil

5% of cost (as per Sec. 205 of Companies Act
unless there is a back price binding buy

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 Method of amortisation, life of amortisation
& scrap value will be reviewed every year.
All effects will be on prospective basis.
★ Intangible assets can never be
revalued in any case.

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 Special Note

 FCA means Future Chartered

Accountant

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