Applicability & Nature
Applicable : Level I 01-04-2003
Level II, III 01-04-2004
Nature : Mandatory
(From 01-04-2003 , Accounting Standard – 8, shall stand withdrawn and all the provisions of AS – 26, will be applicable)
Meaning of Intangible Assets
An Intangible Asset is identifiable non-monetary assets without having physical substance and held by enterprise for the purpose of sale or supply of goods of services.
As per AS – 20, if any asset is to be recognized as an intangible asset the following conditions should be satisfied.
<!--[if !supportLists]-->(i) <!--[endif]-->Identifiability
<!--[if !supportLists]-->(ii) <!--[endif]-->No physical substance
<!--[if !supportLists]-->(iii) <!--[endif]-->Controlled by enterprise
<!--[if !supportLists]-->(iv) <!--[endif]-->There should be Future Economic Benefit
Explanation of Meanings
Meaning of Identifiability: Any asset can be recognized as identifiable asset if the asset can be sold or can be exchanged or can be given for the purpose of rent. These transactions are also directly related to existence of assets.
Meaning of Control: If benefit of asset can be used by an enterprise and such enterprise can restrict the other organization to take the benefit then it will be assumed that asset is controlled by the enterprise.
Meaning of Future Benefit: Intangible Assets can be recognized as per definition only if there is future economic benefit. These benefits can also be defined as expected inflows or cost savings.
Out of Scope
AS – 20 is not applicable on the following intangible asset.
<!--[if !supportLists]-->(i) <!--[endif]-->If any intangible asset is acquired under amalgamation scheme, then AS – 26 shall not be applicable for the asset taken over. (It will be valued as AS – 14)
<!--[if !supportLists]-->(ii) <!--[endif]-->Misc Expenditure such as discount on issue of Share, Debenture or preliminary expenses.
<!--[if !supportLists]-->(iii) <!--[endif]-->Deferred Tax Assets as per AS – 22
<!--[if !supportLists]-->(iv) <!--[endif]-->Investment in Lease
<!--[if !supportLists]-->(v) <!--[endif]-->Accounting of Investment (AS 13, 23, 27 & 21)
Recognition of Asset
An asset can be recognized in the accounting books only if the following conditions are satisfied
<!--[if !supportLists]-->(i) <!--[endif]-->It should be certain that there will be future economic benefit on the basis of suitable assumption and estimation.
Cost of purchase of intangible asset is available in accurate amount.
Intangible asset Dr. xxx
To Cash xxx
Different Situation of Recognition
Cash Purchase: If any intangible asset is purchased in cash then cost of intangible can be calculated by the following statement.
Statement showing cost
Purchase Price xxxx
Add: Stamp duty xxxx
Brokerage Commission xxxx
Any other Expenses (Non-recoverable Duties & taxes) xxxx
Less: Rebate & Discount xxxx
Xxxx
Purchase by Shares
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<!--[endif]--> Cost of Intangible Assets
Fair value or Fair Value of
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<!--[endif]--> I.A. taken share issued
Whichever is clearly evident
Notes:
<!--[if !supportLists]-->(1) <!--[endif]-->If shares of the company are listed on stock exchange then market price can be used directly for the shares issued.
<!--[if !supportLists]-->(2) <!--[endif]-->If shares of the company are not listed then fair value of intangible asset acquired can be used.
<!--[if !supportLists]-->(3) <!--[endif]-->If fair value of intangible taken & share issued both are available then fair value of taken assets should be preferred.
Exchange by Assets
If any intangible asset is exchanged by asset then fair value of given asset should be recognized as cost of intangible. In the absence of such fair value, book value should be recorded of given asset.
Note: Provisions of AS – 26 are not similar under specified heading as in AS – 13 & AS – 10. As per AS – 26, fair value of given asset or book value of given asset can be used for recognition and no settlement in cash will be considered.
As per AS – 10 & 13, settlement in cash can take place at the time of exchange of asset because fair value of asset taken as well as fair value of asset given are considerable.
Taken in Amalgamation
If any intangible is taken over under the scheme of amalgamation then the following points may be applied.
(i) First Recognition
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<!--[endif]--> Fair Value available Fair value not available
Should be recognized separately Should not be recognized separately
By fair value (subject to conditions and should be included in Goodwill
specified below)
<!--[if !supportLists]-->(ii) <!--[endif]-->Fair value of intangible asset can be recognized by active market or latest transaction price.
<!--[if !supportLists]-->(iii) <!--[endif]-->If active market is available then full amount of intangible asset should be recognized.
<!--[if !supportLists]-->(iv) <!--[endif]-->If latest transaction price is used for recognition then cost can be recognized to the extent by which capital reserve is not created. (The above provision can be applicable only for amalgamation in the nature of purchase)
Purchased by Govt Grant
If any intangible asset is purchased by Govt grant then cost of intangible asset can be recorded by net approach or gross approach specified in AS – 12.
Balance Sheet (Disclosure) [Net Approach]
Intangible Asset xxxx
Less: Grant xxxx xxxx
Balance Sheet (Disclosure) [Gross Approach]
Deferred Grant xxxx Intangible Asset xxxx
(Full amount)
Internally Generated Intangible Asset
If any intangible asset is generated internally by the enterprise, then it is generated under two different phases.
<!--[if !supportLists]-->1) <!--[endif]-->Research Phase: Research phase is the planed investigation carried by enterprise to create new application of business activities. Research activities may include invention of new products, production techniques, technical system or any other finding for cost saving or future benefits to enterprise. (All the expenses during research phase should be written off in P&L a/c immediately because it is not certain during research phase that any result will be obtained or not from research.)
<!--[if !supportLists]-->2) <!--[endif]-->Development Phase: Development phase is the verified application of research activities and all the expenses during the development phase should be capitalized in the cost of intangible asset. Before capitalizing the expenditure during development phase the following conditions should be satisfied.
- Technical should be available with the enterprise.
- The
Enterprise - After completion of intangible the enterprise should be able to use or sell intangible.
- Future economic benefit should be measured by suitable assumption.
- Financial Resources should be proper to complete the asset.
- There will be proper system to record the cost during development phase.
(i) Cash/Bank/Grant Receivable Dr
To Govt Grant
(ii) Grant A/c Dr
To Deferred Grant A/c (It is transferred to reserve &surplus)
(iii) Deferred Grant A/c Dr
To P&L A/c
Refund of Grant:
Deferred Grant A/c (O/s Bal) Dr
P&L A/c (which is already used) Dr
To Cash/Bank/Grant Receivable
Note: At the time of refund of grant total benefit should be reversed in the current period in total irrespective the effect of these transaction on current year profits.
Disclosure:
<!--[if !supportLists]-->(i) <!--[endif]-->Accounting policy should be disclosed separately in relation to classification of nature of grant.
<!--[if !supportLists]-->(ii) <!--[endif]-->If any refund has been made during the period then amount of refund should be also disclosed.
Difference between AS/IAS/US GAAP:
If any grant is related to promoter’s contributions then accounting of such grant should be made as capital profits as per as-12. The same grant should be recognized as revenue profits as per other statements. Revenue profits should be recognized on deferred basis as per management intention.
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