accounting standard


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accounting standard

  1. 1. Accounting Standard 26 Intangible Assets Javeed budhwani
  2. 2. Overview • Intangible asset has been defined as expenses incurred by companies on scientific technical knowledge, design and implementation of new processes or systems, licences intellectual property, trademarks, computer software, patents, copyrights, motion picture films, customer lists, mortgage, servicing rights, licenses, import quotas, franchisees. • The financial statements should disclose the aggregate amount of research and development expenditure and amortisation details of the assets.
  3. 3. • The standard will, however, not apply on certain intangible items like financial assets, mineral rights and expenditure on the exploration for, or development and extraction of minerals, oil, natural gas and similar non- regenerative resources and intangible assets arising in insurance enterprises from contracts with policyholders.
  4. 4. Valuation/Recognition of Intangible Assets 1. Primary Recognition (a) Acquired Intangible Assets (b) Self-Generated Intangible Assets 2. Secondary Recognition
  5. 5. 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
  6. 6. 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)
  7. 7. Acquisition by way of Amalgamation • Amalgamation in the • Amalgamation in the nature of Merger nature of Purchase ► at Book value ☞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
  8. 8. Acquisition by way of Government Grant • at Nominal Value 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.
  9. 9. Self-generated 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
  10. 10. Research Phase • 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.
  11. 11. Development Phase • 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
  12. 12. Secondary Recognition 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
  13. 13. Amortisation of Intangible Asset Amortisation of Intangible asset Method of amortisation Life of amortisation Scrap Value (in order of preference)
  14. 14. Method of amortisation (in order of preference) 1. Production unit method 2. SLM method 3. WDV method
  15. 15. 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
  16. 16. 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.
  17. 17. 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
  18. 18. • 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.
  19. 19. THANK YOU