As 26 Intangible Assets

AS-26 Intangible Assets

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Features of Intangible Assets

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Valuation/Recognition of Intangible Assets

▪ Acquisition by way of Purchase ▪ Acquisition by way of Amalgamation 

Acquisition by way of Government Grant 

Acquisition by way of Exchange for another ass

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Acquisition by way of Exchange for shares or o

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Self-Generated Intangible Assets Research Phase Development Phase Conditions for beginning of Development Stage Secondary Recognition Amortisation of Intangible Asset Method of amortisation (in order of preference)

Life of amortisation Scrap Value

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Features of Intangible Assets 1. 2. 3. 4. 5.

Without Physical Substance Non-Monetary Asset For Future Economic Benefits Under the Control of Entity Should Have Identifiable Cost

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Valuation/Recognition of Intangible Assets 1. Primary Recognition (a) Acquired Intangible Assets (b) Self-Generated Intangible Assets 2. Secondary Recognition

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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 Acquisition by way of Exchange for shares or other securities 10/14/08

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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) 10/14/08

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Acquisition by way of Amalgamation Amalgamation in the nature of Merger ► at Book value 

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Amalgamation in the nature of Purchase ☞Fai r Value of Int ang ible asse t 1. Can be i dent ifi ed ► at Fai r Va lue 2. Can’t be ident ifi ed ► at such v alue due to whi ch capi tal rese rve do es no t ar ise o r incr ease 

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Acquisition by way of Government Grant

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at Nominal Value

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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.

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Acquisition by way of Exchange for shares or other securities

at Fair Value of asset obtained or  at Fair Value of securities issued  whichever is more clearly evident. 

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Self-Generated Intangible Assets Following self-generated intangible asset are not to be recognised because their cost can’t be reliably measured. 4. Brand name 5. Copyright 6. Trademark 7. Goodwill 8. Publishing titles 9. Mastheads 10. Marketing or franchise rights 10/14/08

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▪ Remaining self-generated intangible assets will be recognised. ▪ Expenditure on self-generated intangible asset is incurred in two phases.  Research Phase  Development Phase

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Research Phase Research Expenditure 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.

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Development Phase Development Expenditure 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 10/14/08

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Following items are not capitalised 1. Staff training expense 2. Abnormal losses 3. Share of allocated overhead

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Conditions for beginning of Development Stage 1. 2. 3. 4.

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Technical feasibility Intention Resources Future Economic Benefits

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Secondary Recognition  Secondary Expenditure Secondary Expenditure If it can be measured

If it can’t be measured

Whether such expenditure improves the performance of the asset beyond standard performance

yes Capitalised

Not recognised

no Transfer to P&L A/c

However, it is encouraged to write-off such expenditure to P&L A/c 10/14/08

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Amortisation of Intangible Asset Amortisation of Intangible asset Method of amortisation (in order of preference)

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Life of amortisation

Scrap Value

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Method of amortisation (in order of preference)

  

Production unit method SLM method WDV method

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Life of amortisation   

Over a period of 10 years (including goodwill) 3-5 years for software/website As per AS-14 goodwill due to amalgamation will be written-off over a period of 5 years

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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. 10/14/08

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Scrap Value Method of depreciation SLM

WDV

Scrap Value will be taken as nil unless there is a back price binding buy

5% of cost (as per Sec. 205 of Companies Act

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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.

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Special Note  FCA means Future Chartered

Accountant

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