Accounting Standard 26

Intangible Assets

Intangible Assets..An Understanding

From 1840 to 1990 , a corporate value was driven by its

tangible assets
The market capitalization also followed the tangible assets held
by the companies
In early 2000 , the book value of the assets represented less than
15% of the total market value
Therefore what are the key drivers of market value,today?

It is the Intangibles

Intangibles.
Intangibles include its brands,its ability to attract,develop

& mature a cadre of competent professionals & its ability

to attract and retain top notch clients
Intangibles
4 major categories:

Human
Resources:
Collective expertise
Innovation & leadership
Entrepreneur & mgt.skills

Intellectual Property
Assets:
Know how
Copyrights
Patents
Products & tools

Internal Assets:
Systems
Technologies
Methodologies
Processes & tools
Specific to enterprise

External Assets:
Market related intangibles
Customer loyalty
Brand value

Objective
The objective of this Statement is to prescribe the

accounting treatment for intangible assets that are not dealt

with specifically in another Accounting Standard.
This Statement requires an enterprise to recognise an
intangible asset if, and only if, certain criteria are met.
The Statement also specifies how to measure the carrying
amount of intangible assets and requires certain disclosures
about intangible assets.

Scope
This Statement should be applied by all enterprises in
accounting for intangible assets, except:

(a) intangible assets that are covered by another Accounting

Standard.
(b) financial assets.
(c) intangible assets arising in insurance enterprises from
contracts with policyholders.
(d) Lease.

Definitions
Intangible assets is:
Identifiable non monetary assets
Without physical substance
Held for use in production or supply of goods or services.
Examples:
Licenses
Intellectual property rights
Brand names, publishing titles
Computer software
Patents, copy rights
Motion picture licenses
Customers lists

Internally Generated Intangible Assets...

Internal generation of Intangible Assets classified into two
phases:
Research Phase
Recognise expenditure incurred during Research phase as an
expense, when incurred as probability of future economic
benefits not demonstrable.
Development Phase
Recognise Intangible Assets if entity can demonstrate all the
following conditions:
Technical feasibility to complete the Intangible Assets so that it
will be available for use.

 Intention and Availability of adequate technical, financial and

other resources to complete the assets

Ability to use / sell it.
Demonstration of probable future economic benefits.
Ability to measure reliably the expenditure attributable to
Intangible Assets.

Internally Generated Intangible Assets...

Cost:
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.
Cost comprises:
Directly attributable cost such as,
Expenditure on materials / services.
Salary, wages and other employee related cost of personnel
directly engaged in generating the assets.
Any other expenditure such as registration fees, amortisation of
patents and licenses etc.

 Overhead cost allocated on reasonable basis e.g. depreciation,

borrowing cost etc.

Cost does not include
Selling, Administrative and other general overheads.
Initial operating loss.
Expenditure on training staff to operate the asset.

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Amortisation
Amortisation Period

The depreciable amount of an intangible asset should be

allocated on a systematic basis over the best estimate of its
useful life.

There is a rebuttable presumption that the useful life of an

intangible asset will not exceed ten years from the date
when the asset is available for use.
Amortization should commence when the asset is available
for use.

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Amortisation Period
If control over the future economic benefits from
an intangible asset is achieved through legal rights
that have been granted for a finite period, the useful
life of the intangible asset should not exceed the
period of the legal rights unless:
(a) the legal rights are renewable; and
(b) renewal is virtually certain.

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Amortisation Period
Examples

A. An enterprise has purchased an exclusive right to

operate a toll motorway for thirty years. There is no plan to
construct alternative routes in the area served by the
motorway. It is expected that this motorway will be in use
for at least thirty years.
The enterprise amortises the right to operate the
motorway over thirty years, unless there is evidence that its
useful life is shorter.

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IFRS vs US GAAP vs Indian GAAP

Recognition Criteria:
Separately Acquired Intangibles:
Same in all the three frameworks
Internally Generated Intangibles:
Same in case of Indian GAAP and IFRS where as in US GAAP
recognition of internally generated intangible asset is rare. As
both research and development cost needs to be expensed as
incurred unless addressed by separate standard.

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IFRS vs US GAAP vs Indian GAAP

Amortisation:
In case of Indian GAAP there is no concept of indefinite useful
life and there is a rebuttable presumption that the useful life of
intangible assets will not exceed 10 years but the same does not
apply in case of IFRS and US GAAP.
In IFRS and US GAAP there is no threshold of 10 years life and
assets can have indefinite life but the same needs to be tested at
least once in a year for impairment

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Thank You

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