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Accounting · Depreciation and Amortisation

Amortisation of Intangible Assets and AS 26 Basics

Updated 1 October 2026 · Fact-checked

Amortisation is the systematic write-off of the cost of an intangible asset, such as a patent, copyright or lease, over its useful life. Under AS 26, you charge it to the Profit and Loss Account each year. Use straight line unless another pattern fits better. Depreciation is the same idea for tangible assets.

Understand Amortisation of Intangible Assets and AS 26 Basics

An intangible asset has no physical form but gives the business a right or benefit for more than one year. Patents, copyrights, trademarks, licences, software and goodwill are examples. A lease can also be one. A leasehold is a right to use land or a building for a fixed period.

Amortisation means spreading the cost of an intangible asset over the years in which it will be used. The idea is matching: the cost is charged against the revenue that the asset helps to earn. You do not charge the whole cost in the year of purchase.

The difference from depreciation is mainly about the type of asset. Depreciation is for tangible assets like machinery and furniture. Amortisation is for intangible assets. Some books also use depletion for wasting assets like mines. The calculation can look the same, but the words matter in the exam.

AS 26 Intangible Assets is the ICAI standard on this. It says an intangible asset should be recognised only if it is identifiable, the business controls it, future economic benefits are probable, and its cost can be measured reliably. It is then amortised over its useful life. The method should reflect the pattern in which benefits are used. If that pattern cannot be determined reliably, use the straight line method. Residual value is normally assumed to be zero unless the standard's specific conditions are met.

The amortisation period and method should be reviewed at least at each financial year end. Under AS 26 there is a rebuttable presumption that the useful life of an intangible asset does not exceed ten years from the date it is available for use. Amortisation starts when the asset is available for use.

Key rules to remember

Annual amortisation (straight line)
Annual amortisation = (Cost − Residual value) ÷ Useful life in years
Residual value is normally taken as zero for intangibles unless the question says otherwise.
Amortisation for a part year
Amortisation = Annual amortisation × Months used ÷ 12
Start from the date the asset is available for use, not the date of the order.
Book value
Book value = Cost − Accumulated amortisation
Also called carrying amount or written down value.
Journal entry for amortisation
Amortisation of Patents A/c Dr. To Patents A/c
If the question says the asset is shown at net value, credit the asset account directly. The expense goes to the Profit and Loss Account.
Useful life under AS 26
Presumed maximum useful life = 10 years
This is a rebuttable presumption. A longer life needs justification and disclosure.

How to solve Amortisation of Intangible Assets and AS 26 Basics questions

Use this order for any question on amortisation of an intangible asset. It keeps the working clear and earns step marks.

  1. 1Identify the asset and confirm it is intangible: patent, copyright, licence, lease or software.
  2. 2Write down the cost. Include purchase price and directly attributable costs such as legal registration fees.
  3. 3Find the useful life. Use the legal life or the period of expected benefit, whichever is shorter, unless the question says otherwise.
  4. 4Note the residual value. Take it as zero if nothing is given.
  5. 5Choose the method. Use straight line if no pattern of benefit is given.
  6. 6Compute the annual charge, then adjust for part years using the date the asset became available for use.
  7. 7Pass the journal entry and show the Profit and Loss charge.
  8. 8Show the asset in the Balance Sheet at cost less accumulated amortisation.

Quickest way: Three-line working format

When to use it: Use this when the question gives cost, life and dates and asks for the charge or book value in a limited time.

  1. Line 1: Cost ÷ life = annual charge.
  2. Line 2: Annual charge × months ÷ 12 for any part year.
  3. Line 3: Cost − total amortisation to date = book value.
  4. Then write the journal entry with a short narration, for example: Being patent amortised for the year.
  5. Label each figure with the year. Examiners give marks for clear working even if one figure is wrong.

Common mistakes in Amortisation of Intangible Assets and AS 26 Basics

  • Calling the charge depreciation for a patent or copyright.

    The calculation looks the same as for machinery, so students use one word for everything.

    Fix: Use amortisation for intangibles and depreciation for tangibles. Write the account as Amortisation of Patents A/c.

  • Writing off the full cost in the year of purchase.

    Students confuse it with a revenue expense.

    Fix: Capitalise the cost, then charge it year by year over the useful life.

  • Using the legal life when the economic life is shorter.

    Students take the first number given in the question.

    Fix: Use the period over which benefits are expected. If the legal life is shorter, that period is the limit.

  • Ignoring the date of acquisition for a part year.

    Students charge a full year out of habit.

    Fix: Count months from the date the asset is available for use to the year end.

  • Deducting a residual value without being told one.

    The tangible asset formula is applied automatically.

    Fix: Take residual value as nil for intangibles unless the question gives one.

Worked examples

Example 1

A company bought a patent on 1 April 2024 for ₹6,00,000 and spent ₹40,000 on legal registration. The useful life is 8 years. Calculate the annual amortisation, and the book value on 31 March 2026. Use the straight line method and nil residual value.

Show the solution
  1. Cost = ₹6,00,000 + ₹40,000 = ₹6,40,000.
  2. Annual amortisation = ₹6,40,000 ÷ 8 = ₹80,000.
  3. Amortisation for 2024-25 and 2025-26 = 2 × ₹80,000 = ₹1,60,000.
  4. Book value on 31 March 2026 = ₹6,40,000 − ₹1,60,000 = ₹4,80,000.
  5. Journal entry each year: Amortisation of Patents A/c Dr. ₹80,000 To Patents A/c ₹80,000.

Answer: Annual amortisation is ₹80,000 and the book value on 31 March 2026 is ₹4,80,000.

Example 2

A firm acquired a lease of a building for 5 years on 1 October 2024 by paying ₹3,00,000. The financial year ends on 31 March. Show the amortisation for 2024-25 and 2025-26, and the book value on 31 March 2026.

Show the solution
  1. Annual amortisation = ₹3,00,000 ÷ 5 = ₹60,000.
  2. 2024-25: the lease was used for 6 months (October to March) = ₹60,000 × 6 ÷ 12 = ₹30,000.
  3. 2025-26: full year = ₹60,000.
  4. Total amortisation to 31 March 2026 = ₹30,000 + ₹60,000 = ₹90,000.
  5. Book value = ₹3,00,000 − ₹90,000 = ₹2,10,000.
  6. Entry for 2024-25: Amortisation of Leasehold A/c Dr. ₹30,000 To Leasehold A/c ₹30,000.

Answer: Amortisation is ₹30,000 for 2024-25 and ₹60,000 for 2025-26. Book value on 31 March 2026 is ₹2,10,000.

Exam tips

  • Always state the cost including directly attributable costs before dividing by life.
  • Read the acquisition date carefully. Part-year questions are common.
  • Write the journal entry and the Balance Sheet value even if only the charge is asked. It can earn extra marks.
  • Name AS 26 and the term useful life in theory answers, and state that straight line is used when the pattern of benefit is unclear.
  • For a short note on difference from depreciation, give two or three points: type of asset, terminology and nature of the benefit.

Practice questions from Depreciation and Amortisation

Amortisation of Intangible Assets and AS 26 Basics: frequently asked questions

What is the difference between depreciation and amortisation?

Depreciation is the write-off of the cost of tangible assets such as machinery or furniture. Amortisation is the write-off of the cost of intangible assets such as patents or copyrights. Both spread the cost over the useful life.

Which method does AS 26 prefer for amortisation?

AS 26 requires a method that reflects the pattern in which the benefits are used up. If that pattern cannot be determined reliably, you use the straight line method.

What is the journal entry for amortisation of a patent?

Debit Amortisation of Patents A/c and credit Patents A/c with the annual charge. The expense is then transferred to the Profit and Loss Account at year end.

What useful life should I take for an intangible asset?

Use the period over which the asset is expected to give benefits, limited by any legal life. AS 26 presumes the life does not exceed ten years, though this can be rebutted with justification.