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Hello everyone, thanks for the appreciation for the first part of AS 26, now we will start the second part of our AS 26, before starting the second part attaching first of the article:


Self generated Intangible asset are Goodwill, titles, brand, copyrights will not be recognised in accounts. Other self generated Intangible asset should be recognised in accounts for example websites, softwares, patents, knowhow, formulation.

Expenditure incurred on research should be recorded as expense. Expenditure incurred on development should be capitalized(Para 41). Research means planned investigation with objective of gaining knowledge, development means application of gained knowledge

If All of following condition are satisfied, then it is considered as beginning of development phase(Para 44)

1. Technical feasibility has been established

2.Resources are available

3. Intention and ability to operate maintain by entity has been established

4. Intangible asset should be recognised at future economic benefit value or cost incurred in development stage whichever is lower.

Once expensed in research phase it can never be capitalised again even if it was error(Para 58)

Administrative expenses, selling and distribution expense, abnormal loss, staff training will never be capitalized (Para 53) capitalization ceases when asset is ready to use preliminary expenses, preoperative expenses, startup expense, preoperation expense, staff training, relocation expense, advertisement suspense account, shifting expense should not be capitalized and should be written off in year when incurred( Para 56) deferment is allowed for those items whose AS permits( for eg deferred loss under AS 19)

Amortization of Intangible asset:- amortization means depreciation in the value of intangible asset, since there is no wear and tear hence word depreciation is not used, instead amortization is used. Intangible asset should be amortized in ratio of future economic benefits. Period of future economic benefit can be any no. of years but it should be finite.

If ratio of benefit cannot be ascertained then use SLM for amortization, for such purpose life will be taken as 3-5 years for software and websites, 10 years for other intangible assets. Higher life can be considered but it should be justified and finite. Scrap value will be used for SLM method if its realization is assured and certain.(Para 63)

Life of intangible asset can be taken less than specified in (Para 63)

Disclosure requirements:- intangible asset should be disclosed as separate item with details of opening balance, addition, deletion, and closing balance

Amortization of intangible asset should be disclosed as opening balance, amortization during the year and accumulated amortization till date. If life considered is higher life then justification should be given in notes to accounts.

Intangible assets should not be revalued.

Transitional adjustment:-

i)  when AS 26 is applied for first time then calculate value of intangible items in balance sheet

ii) calculate value of intangible assets and intangible items as per company policy (if life is shorter than Para 63) or as per Para 63( if life is more than Para 63)

write off intangible assets or intangible items with opening revenue reserve if book value is more than value created in step 2


Goodwill purchased on 1.04.2000 Rs 150000

book value of goodwill on 1.04.2003 if:-

case 1:-company policy 5 years Rs 60000

case 2:-company policy 10 years Rs 105000

case 3:-company policy 20 years Rs 127500


Co policy

5 Yrs

10 Yrs

20 Yrs

Book value as per co. policy




Revised book value as per AS 26




Write off with opening revenue reserve  




In case of transitional adjustment when AS26 is applied for the first time

Firstly we have to calculate book value as per company policy, the company can take the life of the asset shorter than Para63( 3-5 years or 10 years) but cannot take longer than Para 63, in the first case life taken by company is 5 years which is acceptable and hence book value as per co policy and as per AS26 is same, in the second case also life taken by co. policy is accordance with the AS26, but in the third year company has taken life of the asset 20 years which exceeds life as per Para 63 so revised book value as per As26 is computed and difference is writeoff from opening revenue reserve.

So I have discussed part 2 of this accounting standard,this completes the whole AS 26 Hope you  enjoyed reading the article and gain some knowledge from this. If you have any queries please ask me i will try to solve it, you can mail me at

Thanks for reading!

Esha Agrawal


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