AS-26
Intangible Assets
by Deepak Goel-FCA
6/28/2016
by Deepak Goel
1
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Features of Intangible Assets
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Valuation/Recognition of Intangible Assets
▪ Acquisition by way of Purchase
▪ Acquisition by way of Amalgamation
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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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by Deepak Goel
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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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by Deepak Goel
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Features of Intangible
Assets
1.
2.
3.
4.
5.
Without Physical Substance
Non-Monetary Asset
For Future Economic Benefits
Under the Control of Entity
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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by Deepak Goel
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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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by Deepak Goel
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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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by Deepak Goel
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Acquisition by way of Amalgamation
 Amalgamation in the
nature of Merger
► at Book value
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Amalgamation in the
nature of Purchase
☞Fair Value of Intangible
asset
1. Can be identified
► at Fair Value
2. Can’t be identified
► at such value due to
which capital reserve
does not arise or
increase
by Deepak Goel
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Acquisition by way of Government Grant
 at Nominal Value
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by Deepak Goel
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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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by Deepak Goel
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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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by Deepak Goel
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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.
1.
Brand name
2.
Copyright
3.
Trademark
4.
Goodwill
5.
Publishing titles
6.
Mastheads
7.
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.
1. Research Phase
2. Development Phase
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by Deepak Goel
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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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by Deepak Goel
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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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by Deepak Goel
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Conditions for beginning of
Development Stage
1.
2.
3.
4.
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Technical feasibility
Intention
Resources
Future Economic Benefits
by Deepak Goel
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Secondary Recognition
 Secondary Expenditure
Secondary Expenditure
If it can’t be measured
If it can be measured
Whether such expenditure improves
the performance of the asset
beyond standard performance
yes
Not recognised
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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by Deepak Goel
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Amortisation of Intangible
Asset
Amortisation of Intangible asset
Method of amortisation
(in order of preference)
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Life of amortisation
by Deepak Goel
Scrap Value
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Method of amortisation
(in order of preference)
1. Production unit method
2. SLM method
3. WDV method
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by Deepak Goel
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Life of amortisation
1. Over a period of 10 years (including
goodwill)
2. 3-5 years for software/website
3. As per AS-14 goodwill due to
amalgamation will be written-off over a
period of 5 years
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by Deepak Goel
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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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by Deepak Goel
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Scrap Value
Method of depreciation
SLM
WDV
Scrap Value will be taken as nil
unless there is a back price binding buy
5% of cost (as per Sec. 205 of Companies Act
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by Deepak Goel
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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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by Deepak Goel
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Special Note
 FCA means Future Chartered
Accountant
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