AS 26 Intangible Assets

An intangible asset is an asset that is not physical in nature. Goodwill, brand

recognition and intellectual property, such as patents, trademarks, and copyrights, are all
intangible assets. Intangible assets exist in opposition to tangible assets, which include land,
vehicles, equipment, and inventory.
Intangible asset is a non-physical non-monetary asset which is held for use in the production
or supply of goods and services, or for rentals to others, etc. AS 26 should be applied by all
enterprises in accounting of intangible assets, except: 1. Intangible assets that are within the
scope of another standard financial assets 2. Rights and expenditure on the exploration for or
development of minerals, oil, natural gas and similar non-regenerative resources 3. Intangible
assets arising in insurance enterprise from contracts with policyholders, 4. Expenditure in
respect of termination benefits.
It applies when an item meets the criteria of an Intangible asset and it is probable that the
future economic benefits will flow to the enterprise and the cost of the asset can be measured
reliably. These recognition criteria apply to cost of acquiring and generating an intangible
asset internally. If an intangible asset is acquired separately, that should be measured initially
at cost, which includes purchase price that includes import duty, non-refundable purchase
taxes, after deducting trade discount and related direct cost.   If an asset is acquired in a
business combination, the cost of that asset should be its fair value at the acquisition date
which depends on market expectations. When the asset is acquired free of charge or for a
normal consideration, by way of government grant, then it is recognized at a nominal value or
at the acquisition cost. The cost of an internally generated intangible asset includes all direct
expenditures related to creating, producing and making the asset ready for its intended usage
from the time it meets the first recognition criteria.
Expenditure on an intangible item should be recognized as an expense when it is incurred,
Subsequent expenditure (after purchase or completion of assets) should be added to the cost
of the intangible asset, when there is a probability that the expenditure will generate future
economic benefits and the expenditure can be measured reliably.
Amortization should start when the asset is available for use. The depreciable amount of an
intangible asset should be allocated on the basis of useful life. This AS adopts a presumption
that the useful life of intangible assets does not exceed ten years. In some cases, it would be
longer than ten years.
An intangible asset should be derecognized on disposal or when no future economic benefits
are expected from its use, any gain and loss (difference between the net disposal proceeds and
the carrying amount of the asset) arising should be recognized as income or expenses in
statement of P & L.