Accounting Standard 26

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Applicability of Accounting Standard (AS) 26,
Intangible Assets, to intangible items
1. Accounting Standard (AS) 26, ‘Intangible Assets’, came into effect in respect of expenditure incurred on intangible items during accounting periods commencing on or after 1-4-2003 and is mandatory in nature from that date for the following:

(i) Enterprises whose equity or debt securities are listed on a recognised stock exchange in India, and enterprises that are in the process of issuing equity or debt securities that will be listed on a recognised stock exchange in India as evidenced by the board of directors’ resolution in this regard. (ii) All other commercial, industrial and business reporting enterprises, whose turnover for the accounting period exceeds Rs. 50 crores.

In respect of all other enterprises, the Accounting Standard will come into effect in respect of expenditure incurred on intangible items during accounting periods commencing on or after 1-4-2004 and will be mandatory in nature from that date.

2. An issue has been raised as to what should be the treatment of the expenditure incurred on intangible items, which were treated as deferred revenue expenditure and ordinarily spread over a period of 3 to 5 years before AS 26 became mandatory and which do not meet the definition of an ‘asset’ as per AS 26. The examples of such items are expenditure incurred in respect of lump sum payment towards a Voluntary Retirement Scheme (VRS), preliminary expenses etc. In this context, it is clarified as below: (i) The expenditure incurred on intangible items (referred to in paragraph 2 above) after the date AS 26 became/becomes mandatory (1-4-2003 or 1-4-2004, as the case may be) would have to be expensed when incurred since these do not meet the definition of an ‘asset’ as per AS 26. (ii) In respect of the balances of the expenditure incurred on intangible items (referred to in paragraph 2 above) before the date AS 26 became/becomes mandatory, appearing in the balance sheet as on 1-4- 2003 or 1-4-2004, as the case may be, paragraphs 99 and 100 of AS 26 are applicable. In view of the above, it would not be proper to adjust the balances of such items against the revenue reserves as on 1-4-2003 or 1-4-2004, as the case may be, and such items should continue to be expensed over a number of years as originally contemplated, since as per the accounting principles relevant for deferred revenue expenditure in India, such expenditure is spread over a period which is normally less than the period contemplated in paragraph 63 of AS 26.

(iii) In case an enterprise has already adjusted the above referred balances of the intangible items appearing in the balance sheet as on 1-4-2003 against the opening balance of revenue reserves as on 1-4-2003, it should rectify the same on the basis of the above requirements. THE CHARTERED ACCOUNTANT NOVEMBER 2003

479
Accounting Standard (AS) 26
(issued 2002)
Intangible Assets
501
Contents
OBJECTIVE
SCOPE Paragraphs 1-5
DEFINITIONS 6-18
Intangible Assets 7-18
Identifiability 11-13
Control 14-17
Future Economic Benefits 18
RECOGNITION AND INITIAL MEASUREMENT OF AN
INTANGIBLE ASSET 19-54
Separate Acquisition 24-26
Acquisition as Part of an Amalgamation 27-32
Acquisition by way of a Government Grant 33
Exchanges of Assets 34
Internally Generated Goodwill 35-37
Internally Generated Intangible Assets 38-54
Research Phase 41-43
Development Phase 44-51
Cost of an Internally Generated Intangible Asset 52-54
Continued../. .
502
RECOGNITION OF AN EXPENSE 55-58
Past Expenses not to be Recognised as an Asset 58
SUBSEQUENT EXPENDITURE 59-61
MEASUREMENT SUBSEQUENT TO INITIAL
RECOGNITION 62
AMORTISATION 63-80
Amortisation Period 63-71
Amortisation Method 72-74
Residual Value 75-77
Review of Amortisation Period and Amortisation Method 78-80
RECOVERABILITY OF THE CARRYING AMOUNT –
IMPAIRMENT LOSSES 81-86
RETIREMENTS AND DISPOSALS 87-89
DISCLOSURE 90-98
General 90-95
Research and...
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