Intangible Assets Created from IT Grants recd from Private Corporates

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This discussion explores how to account for intangible assets developed using software credits received for free from an overseas private company. While the credits themselves cannot be directly recognized as an intangible asset of ₹2 Cr, the actual development costs incurred (net of these credits) can be capitalized as an intangible asset if they meet the recognition criteria under IND AS 38. The free credits should be treated as a reduction of expense or income, with appropriate disclosure.

Nitin Jain

Nitin Jain (Querist)
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27 November 2025 A Client Recd a Software Credits at No Price ( From a Overseas Co. ) from against his idea of Software which he utilised for development of Software which got now materialised and the Revenue is getting generated . The Value of Credits were around 2 Cr . Now whether the Intangible Assets of 2 cr can be Created as Intangible Assets in the books and How .
As12 - Governments Grants , i hope will not be applicable being its Overseas Private Co. who provided Grants (Credits) .

Dhirajlal Rambhia online

Dhirajlal Rambhia online

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28 November 2025 “Intangible assets are recognized at cost incurred to bring the asset to its intended use. Where development credits or incentives are received at no cost, such credits are treated as reduction of expense and not recognized as separate intangible assets.”
Here The “credits” merely reduced your cash outflow; they do not themselves create an asset. So, You cannot directly create an intangible asset of ₹2 Cr in the books. You can only capitalize actual development costs, net of credits. The credits themselves should be treated as income/expense reduction, with transparent disclosure.

Dhirajlal Rambhia online

Dhirajlal Rambhia online

(Expert)
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28 November 2025 - Normally, intangible assets are recognized at cost incurred. If received free of cost, the question is whether there is a “cost” to capitalize.
- Since the credits were received at no price, there is no acquisition cost.
- Under IND AS 20 (Government Grants) analogy, if an asset is received free, it is recognized at fair value with a corresponding credit to income (grant).
- However, here the credits are from a private overseas company, not a government grant. So IND AS 20 does not directly apply.
- The correct approach is:
- Do not recognize ₹2 Cr as intangible asset upfront, because there is no purchase consideration.
- Instead, recognize development costs actually incurred (employee costs, overheads, etc.) in creating the software as intangible asset, provided they meet capitalization criteria under IND AS 38.

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