Intangible asset

245 views 4 replies

Kapil Mehra

24 Points Posted on 21 November 2020

I install" Shielded
Control Unipols" which are actually the Police Booths installed at various places as
per understanding with respective Govt. authorities. We have got permission of Govt.
authorities to install the Police booths and to display the advertisement on the booth.
In lieu of our said installation which is free of cost, we have been permitted to display
advertisement on the top of the portion of the said police booth. Thus, we have got
the commercial or business right which is of intangible nature and the prescribed rate
of depreciation under the IT Act is 25%. Once we install the said Police Booth free of
cost, the ownership vests with the respective govt. Authorities. Thus, the assessee
has ownership of the commercial rights to display advertisements and not the
structure of Police booth installed by the assessee.
There is no agreement for purchase or acquisition of intangible assets. There is
no valuation report of the intangible asset. The cost of intangible asset is equal to
cost of purchase of "Shielded Control Unipols"(Police Booth) because we install
these police booth free of cost with the permission of respective government
authorities. In lieu of installation of the said booth, we got right to display
advertisement on the booth. Thus, the cost of installation of the said booths is the
value of intangible assets.
In this regard, it is requested to guide on the above issue that, whether the
said asset is to be treated as tangible asset or intangible asset. If intangible, the
method of valuation of the intangible asset

Replies (4)

yasaswi gomes

My grammar is 💯 good I

7301 Points Posted on 21 November 2020

Who has the ownership of the booths after construction and handing over to police? Police right? Which means the police now control the booths and operate on them. Your not responsible for maintenance apart from the advertisement hoardings and display units correct? This is an internally generated goodwill not an intangible asset. Expense the costs of booths under donations or charity head. Since your not manufacturing the booths by yourself,

Booth Donations a/c

Advertisement hoardings cost a/c

To Cash a/c

and if you hold them as part of your inventory:

Distribution expenses a/c

To Purchases (CoS)a/c

and

Booth Donation a/c

Advert hoardings a/c

To Inventory a/c

To Bank a/c

No intangible assets arise here and as for advertisement, if you believe sale might or might nor occur, the maintenance costs costs should be written off.

The above entries are correct and if it doesn’t tally I’ll post the modified ones.

JATINDER KUMAR

Accountant

3662 Points Posted on 21 November 2020

Learning from you, accounting treatment of this type of matters

Thank you Yasaswi

ayusmita

Tax consultant

5895 Points Posted on 21 November 2020

What is modified one

yasaswi gomes

My grammar is 💯 good I

7301 Points Posted on 22 November 2020

Depends upon the need of your company policies. For eg., if you want to derecognise Purchases and put it into COS directly under donations head and instead of recognising them in the distribution expenses, it is possible because EBITDA will not be impacted.

Also what cash, from what resources are used. Instead what if only materials are used.