AS 26 Intangible Assets: Recognition, Amortisation and Disclosure

AS 26 Intangible Assets explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

What Is AS 26?

Accounting Standard 26 (AS 26), titled "Intangible Assets," was issued by the ICAI and prescribes the accounting treatment for intangible assets that are not specifically dealt with by other accounting standards. An intangible asset is an identifiable non-monetary asset, without physical substance, held for use in the production or supply of goods or services, for rental to others, or for administrative purposes.

Key Definitions

• Intangible Asset — an identifiable non-monetary asset without physical substance
• Amortisation — the systematic allocation of the depreciable amount of an intangible asset over its useful life
• Research — original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge
• Development — application of research findings or other knowledge to a plan 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

Recognition Criteria

An intangible asset should be recognised if, and only if:

1. It is identifiable — separable from the enterprise (can be sold, transferred, licensed) or arises from contractual or legal rights
2. The enterprise has control over the asset — power to obtain future economic benefits and restrict others' access
3. Future economic benefits are probable — revenue from sale, cost savings, or other benefits will flow to the enterprise
4. The cost can be measured reliably

Examples of Intangible Assets

• Computer software
• Patents and copyrights
• Trademarks and brand names
• Franchise agreements and licences
• Customer lists and customer relationships
• Import quotas and marketing rights

Research Phase vs Development Phase

One of the most important distinctions in AS 26 is between research and development:

Six Conditions for Capitalising Development Costs

Development expenditure can be capitalised as an intangible asset only when the enterprise can demonstrate all six of the following:

1. Technical feasibility of completing the intangible asset so it will be available for use or sale
2. Intention to complete the intangible asset and use or sell it
3. Ability to use or sell the intangible asset
4. How the asset will generate probable future economic benefits — including the existence of a market or usefulness if used internally
5. Availability of adequate technical, financial and other resources to complete development and to use or sell it
6. Ability to measure reliably the expenditure attributable to the intangible asset during its development

Internally Generated Intangibles

Internally generated goodwill should not be recognised as an asset. Similarly, internally generated brands, mastheads, publishing titles, customer lists and similar items should not be recognised as intangible assets because the expenditure on them cannot be distinguished from the cost of developing the business as a whole.

Measurement After Recognition

After initial recognition, an intangible asset should be carried at its cost less accumulated amortisation and accumulated impairment losses. AS 26 does not permit the revaluation model for intangible assets.

Amortisation

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 does not exceed 10 years from the date the asset is available for use. If a longer life is justified, the enterprise must amortise over that period and test for impairment annually.

The amortisation method should reflect the pattern of economic benefits. If the pattern cannot be determined reliably, the straight-line method should be used. The residual value is generally assumed to be zero.

Retirements and Disposals

An intangible asset should be derecognised on disposal or when no future economic benefits are expected. The gain or loss is the difference between net disposal proceeds and carrying amount, recognised in the P&L.

Disclosure Requirements

1. Useful lives or amortisation rates used
2. Amortisation methods used
3. Gross carrying amount, accumulated amortisation and impairment at beginning and end of period
4. Reconciliation of carrying amount — additions, retirements, amortisation, impairment
5. Aggregate amount of research and development expenditure recognised as expense during the period
6. Description of any intangible asset amortised over more than 10 years with reasons

Conclusion

AS 26 provides a robust framework for accounting for intangible assets — ensuring that only qualifying expenditure is capitalised while research costs and internally generated goodwill are expensed. The distinction between research and development phases is critical for accurate financial reporting of innovation-driven enterprises.

At TaxClue, our team of qualified CAs assists businesses with intangible asset identification, capitalisation decisions, and compliance with accounting standards. Contact us for expert assistance.

Getting AS 26 Intangible Assets right the first time saves both time and money. Many businesses seek expert help for AS 26 Intangible Assets to stay fully compliant. The rules around AS 26 Intangible Assets are updated from time to time, so stay informed.