AS 26 – Intangible Assets

AS 26 Intangible Assets

Intangible asset is an non-physical non-monetary asset which is held for use in the production or supply of goods and services, or for rentals to others, etc. AS 26 should be applied by all enterprises in accounting of intangible assets, except: 1. Intangible assets that are within the scope of another standard financial assets 2. Rights and expenditure on the exploration for or development of minerals, oil, natural gas and similar non-regenerative resources 3. Intangible assets arising in insurance enterprise from contracts with policyholders, 4. Expenditure in respect of termination benefits.

Recognition and Initial Measurement of an Intangible Assets

It applies when an item meets the criteria of an Intangible asset and it is probable that the future economic benefits will flow to the enterprise and the cost of the asset can be measured reliably. These recognition criteria applies to cost of acquiring and generating an intangible asset internally. Note: If an intangible asset is acquired separately, that should be measured initially at cost, which includes purchase price that includes import duty, non-refundable purchase taxes, after deducting trade discount and related direct cost.   If an asset is acquired in a business combination, the cost of that asset should be its fair value at the acquisition date which depends on market expectations. When the asset is acquired free of charge or for a normal consideration, by way of government grant, then it is recognized at a nominal value or at the acquisition cost. The cost of an internally generated intangible asset includes all direct expenditures related to creating, producing and making the asset ready for its intended usage from the time it meets the first recognition criteria.

Initial and subsequent expenditure

Expenditure on an intangible item should be recognized as an expense when it is incurred, Subsequent expenditure (after purchase or completion of assets) should be added to the cost of the intangible asset,  when there is a probability that the expenditure will generate future economic benefits and the expenditure can be measured reliably.

Amortization Period

Amortization should start when the asset is available for use. The depreciable amount of an intangible asset should be allocated on the basis of useful life. This AS adopts a presumption that the useful life of intangible assets does not exceed ten years. In some cases, it would be longer than ten years.

Retirements and Disposals  

An intangible asset should be derecognized on disposal or when no future economic benefits are expected from its use, any gain and loss (difference between the net disposal proceeds and the carrying amount of the asset) arising should be recognized as income or expenses in statement of P & L.

Amount (`)

Completion of detailed programme and design

45,000

 Coding and Testing

30,000

Other coding costs

40,000

Testing costs

10,000

Product masters for training materials

15,000

Significant Differences in IND AS 38 and AS 26