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AS-26AS-26Intangible AssetsIntangible Assets

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Features of Intangible Assets Features of Intangible Assets Valuation/Recognition of Intangible Assets Valuation/Recognition of Intangible Assets ▪▪ Acquisition by way of Purchase Acquisition by way of Purchase

▪ ▪ Acquisition by way of Amalgamation Acquisition by way of Amalgamation

Acquisition by way of Government GrantAcquisition by way of Government Grant

Acquisition by way of Exchange for another assetAcquisition by way of Exchange for another asset

Acquisition by way of Exchange for shares or other Acquisition by way of Exchange for shares or other securitiessecurities

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Self-Generated Intangible AssetsSelf-Generated Intangible Assets Research PhaseResearch Phase Development PhaseDevelopment Phase Conditions for beginning of Development Conditions for beginning of Development

StageStage Secondary Recognition Secondary Recognition Amortisation of Intangible Asset 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 Substance2. Non-Monetary Asset3. For Future Economic Benefits4. Under the Control of Entity5. Should Have Identifiable Cost

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Valuation/Recognition of Valuation/Recognition of Intangible AssetsIntangible Assets

1. Primary Recognition1. Primary Recognition

(a) (a) Acquired Intangible AssetsAcquired Intangible Assets

(b) (b) Self-Generated Intangible AssetsSelf-Generated Intangible Assets

2. 2. Secondary Recognition 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 expenseto 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 nature of Merger

► at Book value

Amalgamation in the nature of Purchase

☞Fair Value of Intangible asset

1. Can be identified ► at Fair Value2. Can’t be identified ► at such value due

to which capital reserve does not arise or increase

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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 Self-Generated Intangible AssetsAssets

Following self-generated intangible assetFollowing self-generated intangible assetare not to be recognised because their costare not to be recognised because their costcan’t be reliably measured.can’t be reliably measured.1.1. Brand nameBrand name2.2. CopyrightCopyright3.3. TrademarkTrademark4.4. GoodwillGoodwill5.5. Publishing titlesPublishing titles6.6. MastheadsMastheads7.7. Marketing or franchise rightsMarketing or franchise rights

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▪ ▪ Remaining self-generated intangible assetsRemaining self-generated intangible assets

will be recognised.will be recognised.

▪ ▪ Expenditure on Expenditure on self-generated intangible self-generated intangible assetasset

is incurred in two phases.is incurred in two phases.

1.1. Research PhaseResearch Phase

2.2. Development PhaseDevelopment Phase

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Research PhaseResearch Phase

Research ExpenditureResearch Expenditure

Research expenditure means planned Research expenditure means planned expenditure for gaining knowledge.expenditure for gaining knowledge.

Expenditure during research phase will be Expenditure during research phase will be charged to P&L A/c. It can never be charged to P&L A/c. It can never be reinstated as asset in future.reinstated as asset in future.

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Development PhaseDevelopment PhaseDevelopment ExpenditureDevelopment ExpenditureDevelopment expenditure means expenditure incurred on Development expenditure means expenditure incurred on application of already gained knowledge.application of already gained knowledge.Expenditure during development phase will be capitalised Expenditure during development phase will be capitalised as intangible asset till such asset is ready for use.as intangible asset till such asset is ready for use.Maximum capitalisation <= Maximum capitalisation <= Future Economic Future Economic

BenefitsBenefitsAmount to be transferred to P&L A/c Amount to be transferred to P&L A/c

= Amount already capitalised + Expenditure incurred - = Amount already capitalised + Expenditure incurred - Future Economic BenefitsFuture Economic Benefits

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Following items are not capitalised

1. Staff training expense2. Abnormal losses3. Share of allocated overhead

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Conditions for beginning of Development Stage

1. Technical feasibility2. Intention3. Resources4. Future Economic Benefits

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Secondary RecognitionSecondary Recognition

Secondary ExpenditureSecondary Expenditure

Secondary Expenditure

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

Whether such expenditure improves

the performance of the asset

beyond standard performance

yes

Capitalised

However, it is encouraged to write-off

such expenditure to P&L A/c

no

Transfer to P&L A/c

Not recognised

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Amortisation of Intangible Amortisation of Intangible AssetAsset

Amortisation of Intangible asset

Method of amortisation (in order of preference)

Life of amortisation Scrap Value

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Method of amortisation(in order of preference)

1.1. Production unit methodProduction unit method

2.2. SLM methodSLM method

3.3. WDV methodWDV method

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Life of amortisation

1.1. Over a period of 10 years (including Over a period of 10 years (including goodwill)goodwill)

2.2. 3-5 years for software/website3-5 years for software/website

3.3. As per AS-14 goodwill due to As per AS-14 goodwill due to amalgamation will be written-off over a amalgamation will be written-off over a period of 5 yearsperiod of 5 years

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Life of amortisation

★ ★ Higher life can be considered if justified.Higher life can be considered if justified. ▪ ▪ Justification to be given in notes to Justification to be given in notes to

accounts.accounts. ▪ ▪ Such higher life is considered as an Such higher life is considered as an

indicator of impairment loss.indicator of impairment loss. ▪ ▪ If justification is not provided thenIf justification is not provided then Valuation as per AS-26 Valuation as per AS-26 less:less: Book Value Book Value = written-off against opening revenue = written-off against opening revenue

reservereserve ▪ ▪ If any intangible asset is not used, it is If any intangible asset is not used, it is

also an indicator of impairment loss.also an indicator of impairment loss.

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Scrap Value

Method of depreciationMethod of depreciation

SLMSLM WDVWDV

Scrap Value will be taken as nilScrap Value will be taken as nil

unless there is a back price binding buyunless there is a back price binding buy5% of cost (as per Sec. 205 of Companies Act5% of cost (as per Sec. 205 of Companies Act

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Method of amortisation, life of amortisation Method of amortisation, life of amortisation & scrap value will be reviewed every year. & scrap value will be reviewed every year. All effects will be on prospective basis.All effects will be on prospective basis.

★ ★ Intangible assets can never be Intangible assets can never be revalued in any case.revalued in any case.

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Special Note

FCA means Future Chartered Accountant

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