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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... ng in insurance enterprises from contracts with policyholders. This Standard should not be applied to expenditure in respect of termination benefits 38 also. 2. If another Accounting Standard deals with a specific type of intangible asset, an enterprise applies that Accounting Standard instead of this Standard. For example, this Standard does not apply to: (a) intangible assets held by an enterprise for sale in the ordinary course of business (see AS 2, Valuation of Inventories, and AS 7, Construction Contracts); (b) deferred tax assets (see AS 22, Accounting for Taxes on Income); (c) leases that fall within the scope of AS 19, Leases; and (d) goodwill arising on an amalgamation (see AS 14, Accounting for Amalgamations) and goodwill arising on consolidation (see AS 21, Consolidated Financial Statements). 3. This Standard applies to, among other things, expenditure on advertising, training, start-up, research and development activities. Research and development activities are directed to the development of knowledge. Therefore, although these activities may result in an asset with physical substance (for example, a prototype), the physical element of the asset is secondary to its in .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... 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. 6.7 Amortisation is the systematic allocation of the depreciable amount of an intangible asset over its useful life. 6.8 Depreciable amount is the cost of an asset less its residual value. 6.9 Useful life is either: (a) the period of time over which an asset is expected to be used by the enterprise; or (b) the number of production or similar units expected to be obtained from the asset by the enterprise. 6.10. Residual value is the amount which an enterprise expects to obtain for an asset at the end of its useful life after deducting the expected costs of disposal. 6.11. Fair value of an asset is the amount for which that asset could be exchanged between knowledgeable, willing parties in an arm's length transaction. 6.12. An active market is a market where all the following conditions exist: (a) the items traded within the market are homogeneous; (b) willing buyers and sellers can normally be found at any time; and (c) prices are available to the public. 6.13. An impairment loss is the amount by wh .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... ngible asset under this Standard, judgement is required to assess as to which element is predominant. For example, computer software for a computer controlled machine tool that cannot operate without that specific software is an integral part of the related hardware and it is treated as a fixed asset. The same applies to the operating system of a computer. Where the software is not an integral part of the related hardware, computer software is treated as an intangible asset. Identifiability 11. The definition of an intangible asset requires that an intangible asset be identifiable. To be identifiable, it is necessary that the intangible asset is clearly distinguished from goodwill. Goodwill arising on an amalgamation in the nature of purchase represents a payment made by the acquirer in antici pation of future economic benefits. The future economic benefits may result from synergy between the identifiable assets acquired or from assets which, individually, do not qualify for recognition in the financial statements but for which the acquirer is prepared to make a payment in the amalgamation. 12. An intangible asset can be clearly distinguished from goodwill if the asset is separable .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... ems meet the definition of an intangible asset. For a similar reason, specific management or technical talent is unlikely to meet the definition of an intangible asset, unless it is protected by legal rights to use it and to obtain the future economic benefits expected from it, and it also meets the other parts of the definition. 17. An enterprise may have a portfolio of customers or a market share and expect that, due to its efforts in building customer relationships and loyalty, the customers will continue to trade with the enterprise. However, in the absence of legal rights to protect, or other ways to control, the relationships with customers or the loyalty of the customers to the enterprise, the enterprise usually has insufficient control over the economic benefits from customer relationships and loyalty to consider that such items (portfolio of customers, market shares, customer relationships, customer loyalty) meet the definition of intangible assets. Future Economic Benefits 18. The future economic benefits flowing from an intangible asset may include revenue from the sale of products or services, cost savings, or other benefits resulting from the use of the asset by the en .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... ting for Amalgamations. Where in preparing the financial statements of the transferee company, the consideration is allocated to individual identifiable assets and liabilities on the basis of their fair values at the date of amalgamation, paragraphs 28 to 32 of this Standard need to be considered. 28. Judgement is required to determine whether the cost (i.e. fair value) of an intangible asset acquired in an amalgamation can be measured with sufficient reliability for the purpose of separate recognition. Quoted market prices in an active market provide the most reliable measurement of fair value. The appropriate market price is usually the current bid price. If current bid prices are unavailable, the price of the most recent similar transaction may provide a basis from which to estimate fair value, provided that there has not been a significant change in economic circumstances between the transaction date and the date at which the asset's fair value is estimated. 29. If no active market exists for an asset, its cost reflects the amount that the enterprise would have paid, at the date of the acquisition, for the asset in an arm's length transaction between knowledgeable and w .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... is given free of cost, it should be recorded at a nominal value. Accordingly, intangible asset acquired free of charge, or for nominal consideration, by way of government grant is recognised at a nominal value or at the acquisition cost, as appropriate; any expenditure that is directly attributable to making the asset ready for its intended use is also included in the cost of the asset. Exchanges of Assets 34. An intangible asset may be acquired in exchange or part exchange for another asset. In such a case, the cost of the asset acquired is determined in accordance with the principles laid down in this regard in AS 10, Property, Plant and Equipment. Internally Generated Goodwill 35. Internally generated goodwill should not be recognised as an asset. 36. In some cases, expenditure is incurred to generate future economic benefits, but it does not result in the creation of an intangible asset that meets the recognition criteria in this Standard. Such expenditure is often described as contributing to internally generated goodwill. Internally generated goodwill is not recognised as an asset because it is not an identifiable resource controlled by the enterprise that can be measured rel .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... and final selection of, applications of research findings or other knowledge; (c) the search for alternatives for materials, devices, products, processes, systems or services; and (d) the formulation, design, evaluation and final selection of possible alternatives for new or improved materials, devices, products, processes, systems or services. Development Phase 44. An intangible asset arising from development (or from the development phase of an internal project) should be recognised if, and only if, an enterprise can demonstrate all of the following: (a) the technical feasibility of completing the intangible asset so that it will be available for use or sale; (b) its intention to complete the intangible asset and use or sell it; (c) its ability to use or sell the intangible asset; (d) how the intangible asset will generate probable future economic benefits. Among other things, the enterprise should demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset; (e) the availability of adequate technical, financial and other resources to complete the development .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... le. Therefore, such items are not recognised as intangible assets. Cost of an Internally Generated Intangible Asset 52. The cost of an internally generated intangible asset for the purpose of paragraph 23 is the sum of expenditure incurred from the time when the intangible asset first meets the recognition criteria in paragraphs 20-21 and 44. Paragraph 58 prohibits reinstatement of expenditure recognised as an expense in previous annual financial statements or interim financial reports. 53. The cost of an internally generated intangible asset comprises all expenditure that can be directly attributed, or allocated on a reasonable and consistent basis, to creating, producing and making the asset ready for its intended use. The cost includes, if applicable: (a) expenditure on materials and services used or consumed in generating the intangible asset; (b) the salaries, wages and other employment related costs of personnel directly engaged in generating the asset; (c) any expenditure that is directly attributable to generating the asset, such as fees to register a legal right and the amortisation of patents and licences that are used to generate the asset; and (d) overheads that are nec .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... , the cost of the production process is Rs. 21 lakhs (Rs. 1 lakh expenditure recognised at the end of 20X1 plus Rs. 20 lakhs expenditure recognised in 20X2). The enterprise recognises an impairment loss of Rs. 2 lakhs to adjust the carrying amount of the process before impairment loss (Rs. 21 lakhs) to its recoverable amount (Rs. 19 lakhs). This impairment loss will be reversed in a subsequent period if the requirements for the reversal of an impairment loss in AS 28 are met. Recognition of an Expense 55. Expenditure on an intangible item should be recognised as an expense when it is incurred unless: (a) it forms part of the cost of an intangible asset that meets the recognition criteria (see paragraphs 19- 54); or (b) the item is acquired in an amalgamation in the nature of purchase and cannot be recognised as an intangible asset. If this is the case, this expenditure (included in the cost of acquisition) should form part of the amount attributed to goodwill (capital reserve) at the date of acquisition (see AS 14, Accounting for Amalgamations). 56. In some cases, expenditure is incurred to provide future economic benefits to an enterprise, but no intangible asset or other asset is .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... assets. In addition, it is often difficult to attribute such expenditure directly to a particular intangible asset rather than the business as a whole. Therefore, only rarely will expenditure incurred after the initial recognition of a purchased intangible asset or after completion of an internally generated intangible asset result in additions to the cost of the intangible asset. 61. Consistent with paragraph 50, subsequent expenditure on brands, mastheads, publishing titles, customer lists and items similar in substance (whether externally purchased or internally generated) is always recognised as an expense to avoid the recognition of internally generated goodwill. Measurement Subsequent to Initial Recognition 62. After initial recognition, an intangible asset should be carried at its cost less any accumulated amortisation and any accumulated impairment losses. Amortisation Amortisation Period 63. 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. .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... timates the recoverable amount of the intangible asset at least annually in order to identify any impairment loss (see paragraph 83); and (c) discloses the reasons why the presumption is rebutted and the factor(s) that played a significant role in determining the useful life of the asset (see paragraph 94(a)). Examples A. An enterprise has purchased an exclusive right to generate hydro-electric power for sixty years. The costs of generating hydroelectric power are much lower than the costs of obtaining power from alternative sources. It is expected that the geographical area surrounding the power station will demand a significant amount of power from the power station for at least sixty years. The enterprise amortises the right to generate power over sixty years, unless there is evidence that its useful life is shorter. _____________________________________________________________________ B. 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 oper .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... there is a change in the expected pattern of consumption of economic benefits to be derived from that asset. There will rarely, if ever, be persuasive evidence to support an amortisation method for intangible assets that results in a lower amount of accumulated amortisation than under the straight-line method. 74. Amortisation is usually recognised as an expense. However, sometimes, the economic benefits embodied in an asset are absorbed by the enterprise in producing other assets rather than giving rise to an expense. In these cases, the amortisation charge forms part of the cost of the other asset and is included in its carrying amount. For example, the amortisation of intangible assets used in a production process is included in the carrying amount of inventories (see AS 2, Valuation of Inventories). Residual Value 75. The residual value of an intangible asset should be assumed to be zero unless: (a) there is a commitment by a third party to purchase the asset at the end of its useful life; or (b) there is an active market for the asset and: (i) residual value can be determined by reference to that market; and (ii) it is probable that such a market will exist at the end of the .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... an impairment loss occurs before the end of the first annual accounting period commencing after acquisition for an intangible asset acquired in an amalgamation in the nature of pu rchase, the impairment loss is recognised as an adjustment to both the amount assigned to the intangible asset and the goodwill (capital reserve) recognised at the date of the amalgamation. However, if the impairment loss relates to specific events or chan ges in circumstances occurring after the date of acquisition, the impairment loss is recognised under AS 28 and not as an adjustment to the amount assigned to the goodwill (capital reserve) recognised at the date of acquisition. 83. In addition to the requirements of AS 28, an enterprise should estimate the recoverable amount of the following intangible assets at least at each financial year end even if there is no indication that the asset is impaired: (a) an intangible asset that is not yet available for use; and (b) an intangible asset that is amortised over a period exceeding ten years from the date when the asset is available for use. The recoverable amount should be determined under AS 28 and impairment losses recognised accordingly. 84. The abili .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... es or the amortisation rates used; (b) the amortisation methods used; (c) the gross carrying amount and the accumulated amortisation (aggregated with accumulated impairment losses) at the beginning and end of the period; (d) a reconciliation of the carrying amount at the beginning and end of the period showing: (i) additions, indicating separately those from internal development and through amalgamation; (ii) retirements and disposals; (iii) impairment losses recognised in the statement of profit and loss during the period (if any); (iv) impairment losses reversed in the statement of profit and loss during the period (if any); (v) amortisation recognised during the period; and (vi) other changes in the carrying amount during the period. 91. A class of intangible assets is a grouping of assets of a similar nature and use in an enterprise's operations. Examples of separate classes may include: (a) brand names; (b) mastheads and publishing titles; (c) computer software; (d) licences and franchises; (e) copyrights, and patents and other industrial property rights, service and operating rights; (f) recipes, formulae, models, designs and prototypes; and (g) intangible assets under de .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... ngible asset that is still in use. Transitional Provisions39 99. Where, on the date of this Standard coming into effect, an enterprise is following an accounting policy of not amortising an intangible item or amortising an intangible item over a period longer than the period determined under paragraph 63 of this Standard and the period determined under paragraph 63 has expired on the date of this Standard coming into effect, the carrying amount appearing in the balance sheet in respect of that item should be eliminated with a corresponding adjustment to the opening balance of revenue reserves. In the event the period determined under paragraph 63 has not expired on the date of this Standard coming into effect and: (a) if the enterprise is following an accounting policy of not amortising an intangible item, the carrying amount of the intangible item should be restated, as if the accumulated amortisation had always been determined under this Standard, with the corresponding adjustment to the opening balance of revenue reserves. The restated carrying amount should be amortised over the balance of the period as determined in paragraph 63. (b) if the remaining period as per the accounti .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... s toward correcting existing problems in an operating system. (b) Determine the performance requirements (that is, what it is that they need the software to do) and systems requirements for the computer software project it has proposed to undertake. (c) Explore alternative means of achieving specified performance requirements. For example, should an entity make or buy the software. Should the software run on a mainframe or a client server system. (d) Determine that the technology needed to achieve performance requirements exists. (e) Select a consultant to assist in the development and/or installation of the software. Development Stage 5. An internally generated software arising at the development stage should be recognised as an asset if, and only if, an enterprise can demonstrate all of the following: (a) the technical feasibility of completing the internally generated software so that it will be available for internal use; (b) the intention of the enterprise to complete the internally generated software and use it to perform the functions intended. For example, the intention to complete the internally generated software can be demonstrated if the enterprise commits to the fundin .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... and consistent basis to create the software for its intended use. The cost include: (a) expenditure on materials and services used or consumed in developing the software; (b) the salaries, wages and other employment related costs of personnel directly engaged in developing the software; (c) any expenditure that is directly attributable to generating software; and (d) overheads that are necessary to generate the software and that can be allocated on a reasonable and consistent basis to the software (For example, an allocation of the depreciation of fixed assets, insurance premium and rent). Allocation of overheads are made on basis similar to those used in allocating the overhead to inventories. 9. The following are not components of the cost of an internally generated software: (a) selling, administration and other general overhead expenditure unless this expenditure can be directly attributable to the development of the software; (b) clearly identified inefficiencies and initial operating losses incurred before software achieves the planned performance; and (c) expenditure on training the staff to use the internally generated software. Software Acquired for Internal Use 10. The co .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... d should be used. The amortisation charge for each period should be recognised as an expenditure unless another Accounting Standard permits or requires it to be included in the carrying amount of another asset. For example, the amortisation of a software used in a production process is included in the carrying amount of inventories. II. Illustrative Application of the Accounting Standard to Web-Site Costs 1. An enterprise may incur internal expenditures when developing, enhancing and maintaining its own web site. The web site may be used for various purposes such as promoting and advertising products and services, providing electronic services, and selling products and services. 2. The stages of a web site's development can be described as follows: (a) Planning - includes undertaking feasibility studies, defining objectives and specifications, evaluating alternatives and selecting preferences; (b) Application and Infrastructure Development - includes obtaining a domain name, purchasing and developing hardware and operating software, installing developed applications and stress testing; and (c) Graphical Design and Content Development - includes designing the appearance of web p .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... quirements and guidance in paragraphs 39-54 of this Standard to an expenditure incurred for developing its own web site in addition to the general requirements for recognition and initial measurement of an intangible asset. The cost of a web site, as described in paragraphs 52-54 of this Standard, comprises all expenditure that can be directly attributed, or allocated on a reasonable and consistent basis, to creating, producing and preparing the asset for its intended use. The enterprise should evaluate the nature of each activity for which an expenditure is incurred (e.g., training employees and maintaining the web site) and the web site's stage of development or post-development: (a) Paragraph 41 of this Standard requires an expenditure on research (or on the research phase of an internal project) to be recognised as an expense when incurred. The examples provided in paragraph 43 of this Standard are similar to the activities undertaken in the Planning stage of a web site's development. Consequently, expenditures incurred in the Planning stage of a web site's development are recognised as an expense when incurred. (b) Paragraph 44 of this Standard requires an intangib .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... rmine whether a separate asset, is identifiable with respect to such content (e.g., copyrights and licenses), and if a separate asset is not identifiable, then the expenditure should be included in the cost of developing the web site when the expenditure meets the conditions in paragraph 44 of this Standard. As per paragraph 20 of this Standard, an intangible asset is recognised if, and only if, it meets specified criteria, including the definition of an intangible asset. Paragraph 52 indicates that the cost of an internally generated intangible asset is the sum of expenditure incurred from the time when the intangible asset first meets the specified recognition criteria. When an enterprise acquires or creates content, it may be possible to identify an intangible asset (e.g., a license or a copyright) separate from a web site. Consequently, an enterprise determines whether an expenditure to enable use of content, which had been created for another purpose, on its web site becoming available for use results in a separate identifiable asset or the expenditure is included in the cost of developing the web site. (c) the operating stage commences once the web site is available for use, .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... under paragraphs 20 and 44 Operating updating graphics and revising content adding new functions, features and content registering the web site with search engines backing up data reviewing security access analysing usage of the web site Expense when incurred, unless in rare circumstances it meets the criteria in paragraph 59, in which case the expenditure is included in the cost of the web site Other selling, administrative and other general overhead expenditure unless it can be directly attributed to preparing the web site for use clearly identified inefficiencies and initial operating losses incurred before the web site achieves planned performance (e.g., false start testing) training employees to operate the web site Expense when incurred Illustration B This Illustration which does not form part of the Accounting Standard, provides illustrative application of the requirements contained in paragraph 99 of this Accounting Standard in respect of transitional provisions. Illustration 1 - Intangible Item was not amortised and the amortisation period determined under paragraph 63 has expired. An intangible item is appearing in the balance sheet of A Ltd. at Rs. 10 lakhs as on 1-4-20 .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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..... balance of amortisation period determined by applying paragraph 63, i.e., 5 years. Accordingly, the enterprise would be required to amortise the intangible item over the remaining 2 years as per the accounting policy followed by the enterprise. Illustration 4 - Amortisation period determined under paragraph 63 has not expired and the remaining amortisation period as per the accounting policy followed by the enterprise is longer. An intangible item is appearing in the balance sheet of A Ltd. at Rs. 18 lakhs as on 1-4-2003. The item was acquired for Rs. 24 lakhs on April 1, 2000 and was available for use from that date. The enterprise has been following a policy of amortising the intangible item over a period of 12 years on straight-line basis. Applying paragraph 63, the enterprise determines that the item would have been amortised over a period of 10 years on straight line basis from the date when the item was available for use i.e., April 1, 2000. On 1-4-2003, the remaining period of amortisation is 9 years as per the accounting policy followed by the enterprise which is longer as compared to the balance of period stipulated in paragraph 63, i.e., 7 years. Accordingly, the enterpr .....

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AS - 26 - Intangible Assets - Companies (Accounting Standards) Rules, 2021

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