Duration: 60

mins
Slides: 8

LMT SCHOOL OF MANAGEMENT, THAPAR

UNIVERSITY
Masters of Business Administration

Course: Financial Reporting and Analysis

Faculty: Dr. Sonia Garg (Email:
sonia.garg@thapar.edu)

Session 13: Accounting for Intangible Fixed

Assets

AS-26 weblink
An intangible asset is an identifiable non-monetary asset,
without physical substance, held for use in the production or
supply of goods or services, for rental to others, or for
administrative purposes.
Applies to all intangible assets other than acquired goodwill
(which is still governed by AS-10)
Intangible assets can be acquired in a business purchase or
can be internally generated
In a business acquisition, excess price paid is goodwill; however
part of this excess price paid is on account of other intangible
assets which have to be identified and their cost ascertained
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Accounting for Intangible Fixed

Assets

Assets acquired in a business

purchase
Identification of Intangible assets
Enterprises control over the resource
Expectation of future economic benefits flowing to the
enterprise
The cost, that is, fair value of the asset can be measured
reliably

Separately acquired intangible asset

Cost can be measured reliably since purchase consideration
paid is definite and specific to the asset acquired
Cost comprises purchase price net of trade discounts and
inclusive of duties, taxes and other directly attributable costs
incurred in making the asset ready for intended use
Example: Professional legal fees in the process of acquiring
patents
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Accounting for Intangible Fixed

Assets

Internally generated intangible

assets
Goodwill: internally generated goodwill is not recognised as an asset; it is
not an identifiable resource controlled by the firm that can be measured
reliably at cost
Other assets: for asset to qualify for recognition it should, difficulty arises in
identifying
Generation of probable future economic benefits
No intangible
Point of time of generation these benefits
asset arising from
Cost of asset reliably

research should
be recognised

Generation of asset is divided into two phases:

Research is original and planned investigation undertaken with the prospect
of gaining new scientific or technical knowledge and understanding.
Development is the application of research findings or other knowledge to a
plan or design for the production of new or substantially improved materials,
devices, products, processes, systems or services prior to the
commencement of commercial production or use.
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Accounting for Intangible Fixed

Assets

Intangible asset from

development
It should be recognised if the firm can demonstrate the following
the technical feasibility of completing the intangible asset so that it will
be available for use or sale;
its intention to complete the intangible asset and use or sell it;
its ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic
benefits (the existence of a market) and usefulness of the intangible asset;
the availability of adequate technical, financial and other resources
to complete the development and to use or sell the intangible asset; and
its ability to measure the expenditure attributable to the intangible asset
during its development reliably.
Cost of an internally generated intangible asset is the sum of expenditure
incurred from the time when the intangible asset first meets the recognition
criteria.
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Accounting for Intangible Fixed

Assets

Specific non-recognition of certain

assets
AS 26 prescribes that in addition to internally
generated goodwill, internally generated
Brands
Publishing titles
Customer lists
should not be recognised as intangible
assets, since the expenditure incurred on
them cannot be distinguished from the cost
of developing the business as a whole
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Accounting for Intangible Fixed

Assets

Amortisation of intangible
assets
It is a systematic allocation of the depreciable
amount of an intangible asset over its useful life
As per AS 26 it should not be more than 10 years
unless persuasive evidence is provided
Amortisation commences when the asset is
available for use
Residual value of an intangible asset should be zero
unless
There is commitment from a third party to purchase the
asset
There is an active market for the asset and its residual
value can be determined
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Accounting for Intangible Fixed

Assets

Disclosures in F/S

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Accounting for Intangible Fixed

Assets