Accounting Standard 26
(accounting for Intangible Assets)
Presented to: Prof. Shwetha Shetty
Presented by: Jatin Mittal
• The Institute of Chartered Accountants of India (ICAI) issued an
accounting standard for intangible assets which is mandatory for listed
companies and for companies planning an initial public offer. As per
the guideline, companies will have to report in their financial
statements on expenses incurred on research and development,
intellectual property rights, customer relations and brand development
• Called AS 26, the accounting standard came into effect from April 1,
Definition of Intangible Assets
Intangible assets is:
• Identifiable non monetary assets
• Without physical substance
• Held for use in production or supply of goods or services
• Examples: Goodwill except internally generated, R&D expenses (research exp.
to be written off if product fails and development in following years.), start-up
cost, patents, copy rights, advertising expenses, rights under any licenses.
• The objective of this standard is to prescribe the accounting
treatment for intangible assets that are not dealt with specifically in
another Accounting Standard.
• This standard requires an enterprise to recognize an intangible asset if,
and only if, certain criteria are met.
• The standard also specifies how to measure the carrying amount of
intangible assets and requires certain disclosures about intangible
This standard should be applied by all enterprises in accounting for
intangible assets, except:
• Intangible assets that are covered by another Accounting Standard
• Financial assets; mineral rights and expenditure on the exploration for,
or development and extraction of, minerals, oil, natural gas and similar
• Intangible assets arising in insurance enterprises from contracts with
Internally Generated Intangible Assets
• Internal generation of Intangible Assets classified into two phases:
1. Research Phase
• Recognize expenditure incurred during Research phase as an expense.
2. Development Phase
• Recognize Intangible Assets if entity can demonstrate all the following conditions:
a) Technical feasibility to complete the Intangible Assets so that it will be available for use.
b) Intention and Availability of adequate technical, financial and other resources to complete the
c) Ability to use / sell it.
d) Demonstration of probable future economic benefits.
e) Ability to measure reliably the expenditure attributable to Intangible Assets.
Cost of Internally generated Intangible Assets is calculated from the time when the
Intangible Assets first meet the recognition criteria till the asset becomes ready for use.
Amortization : the systematic allocation of the depreciable amount of an intangible asset
over its useful life.
• Period :
1. Amortize over the best estimated useful life of the asset.
2. Rebuttable presumption is that useful life can not exceed more than 10 years.
3. Persuasive evidence required to justify useful life of more than 10 years.
4. Straight Line Method is considered as most appropriate.
Q1. On 5th April’02, A ltd. Was granted a patent by I ltd. For
Rs. 80k. The legal cost incurred was 51k and an additional
cost of 85k spent to successfully implement the patent. The
estimated life is 10 yrs. The co. shows value at 80k and the
remaining as revenue expense in current years P&L A/C. Is
the treatment correct?
Ans. So the treatment given is wrong as the value of
the patent is 80k+51k+85k=216k. As per AS 26,
amortization will take for 10 yrs.
Q2. A co. spends 75 lakhs to acquire goodwill from another
co. in 2010. In 2011, an additional sum of 2 lakhs was spent
on designing to maintain the goodwill. The benefit period is
20 yrs. Apply AS 26.
Q3. On 1st Feb’10, N ltd. Purchased a franchise to operate
boating service from state government for Rs. 60k and annual
fee at 1% of boating revenue. The franchisee expires after
5yrs. The boating revenues for that year was 30k, 35k, 40k.
Apply AS 26 and show the effect in final A/C.