Advanced Accounting · AS 26 Intangible Assets

Amortisation of Intangible Assets under AS 26 for CA Inter

Updated 4 October 2026 · Fact-checked

Amortisation under AS 26 is the systematic allocation of an intangible asset's depreciable amount (cost less residual value) over its useful life, starting when the asset is available for use. Presume a life of no more than ten years unless you can rebut it. Use straight-line if the pattern is unclear. Review period and method every year-end.

Understand Amortisation of Intangible Assets

An intangible asset gives you benefits over several years. Matching says its cost should be charged to profit or loss over those years, not all in the year of purchase. This spreading of cost is called amortisation. It is the intangible-asset version of depreciation.

The first step is the useful life. This is the period over which you expect the asset to be available for use, or the number of production or similar units you expect to get from it. Legal or contractual rights (a licence, a patent) can cap the life. Technology change, expected competitor action and market demand can shorten it.

AS 26 gives a rebuttable presumption that the useful life of an intangible asset will not exceed ten years from the date it is available for use. You can use a longer life only if you have good evidence that the asset will really last longer. If you do, you must also estimate the recoverable amount of the asset at least annually under AS 28 (impairment), and disclose the reasons and the factors that justify the longer life.

The depreciable amount is cost less residual value. Residual value is assumed to be zero unless (a) a third party has committed to buy the asset at the end of its useful life, or (b) there is an active market for the asset, residual value can be found from that market, and it is probable such a market will exist at the end of the life.

Amortisation starts when the asset is available for use, not when it is first used. The method must reflect the expected pattern of benefits. Straight-line, diminishing balance and unit of production are all allowed. If you cannot determine the pattern reliably, use straight-line. At least at each financial year-end you review the amortisation period and method. A change is treated as a change in accounting estimate (AS 5) and applies to the current and future periods only.

Key rules to remember

Depreciable amount: Depreciable amount = Cost − Residual value; Residual value is taken as zero unless there is a third-party purchase commitment or an active market, as explained in the concept.
Straight-line amortisation: Annual amortisation = (Cost − Residual value) ÷ Useful life in years; Use this when the pattern of benefits cannot be reliably determined. Multiply by months used ÷ 12 for a part year.
Unit of production method: Amortisation for the year = Depreciable amount × Units produced in the year ÷ Total expected units; Use when benefits relate to output, such as a licence to produce a fixed quantity.
Ten-year presumption: Useful life is presumed not to exceed 10 years from the date available for use; Rebuttable. A longer life needs evidence, an annual AS 28 recoverable amount estimate and disclosure of reasons.
Revised amortisation after review: Revised annual charge = (Carrying amount at review date − Residual value) ÷ Revised remaining useful life; Applied prospectively as a change in estimate. Do not restate earlier years.
Start of amortisation: Amortisation begins when the asset is available for use; Not when you pay for it and not when you first use it.

How to solve Amortisation of Intangible Assets questions

Use this order for any amortisation question. It also gives you the step marks.

1Find the cost of the asset as per AS 26 initial measurement (purchase price plus directly attributable cost). Note any date of purchase and date available for use.
2Decide the useful life in years. Apply the ten-year presumption. If the question gives a longer life with evidence, accept it and note the AS 28 annual test and disclosure.
3Fix the residual value. Take zero unless the question gives a third-party commitment or an active market.
4Choose the method. Use the one stated in the question. If none is stated or the pattern is unclear, use straight-line.
5Compute the annual charge, then prorate for months from the date the asset became available for use to the year-end.
6Compute accumulated amortisation and the carrying amount at the year-end.
7If the question gives a review, change in estimate or change in method, recompute using the carrying amount and the revised remaining life. Apply prospectively only.
8State the treatment in one line: charge to the statement of profit and loss, disclosed with method and rates, and the change treated as a change in estimate under AS 5.

Quickest way: Exam-time approach for amortisation questions

When to use it: Use it for both MCQs and descriptive numericals when time is short.

MCQ: look for the date the asset became available for use first. Many wrong options come from counting months from the wrong date.
MCQ: if residual value is not mentioned, take it as zero. Do not subtract anything.
MCQ: if a review changes the life, divide the carrying amount (not the original cost) by the remaining life. Eliminate options that use original cost.
MCQ: for a statement on the ten-year rule, eliminate options saying it is an absolute ceiling. It is rebuttable.
Written: use a four-line format: Cost, Life, Annual charge × months, Carrying amount. Show each line even if the answer is simple.
Written: add one closing sentence on the principle, for example that the change is a change in estimate and applied prospectively. This often earns a separate mark.

Common mistakes in Amortisation of Intangible Assets

Treating the ten-year limit as an absolute maximum.
Students remember the number and forget the word rebuttable.
Fix: Write it as a presumption. A longer life is allowed with evidence, an annual AS 28 recoverable amount estimate and disclosure of reasons.
Starting amortisation from the date of payment or first use.
Students copy the depreciation habit of using the purchase date.
Fix: Count from the date the asset is available for use, which is the date it is in the location and condition to operate as intended.
Restating past years when the useful life or method is revised.
Students confuse a change in estimate with a prior period error.
Fix: A review change is a change in accounting estimate under AS 5. Spread the carrying amount, less residual value, over the revised remaining life from the current year.
Dividing the original cost by the new remaining life after a review.
Students forget that part of the cost is already amortised.
Fix: Use the carrying amount at the review date, less any residual value, and divide by the remaining life.
Deducting a residual value when none is given or none qualifies.
Students carry over the scrap value idea from tangible assets.
Fix: For intangibles the residual value is zero unless a third party has committed to buy it or an active market exists and meets the AS 26 conditions.
Using diminishing balance or unit of production without any basis, or ignoring the straight-line default.
Students pick a method they find easy to compute.
Fix: Choose the method that matches the pattern of benefits. If the pattern cannot be reliably determined, use straight-line.

Worked examples

Example 1

On 1 October 2026, X Ltd bought a software licence for ₹12,00,000. It was available for use immediately. Useful life is 5 years, residual value is nil, and the company uses the straight-line method. The financial year ends on 31 March. Compute the amortisation for 2026-27 and the carrying amount at 31 March 2027.

Show the solution

Cost = ₹12,00,000. Residual value = nil. Depreciable amount = ₹12,00,000.
Useful life = 5 years, which is within the ten-year presumption.
Annual amortisation = ₹12,00,000 ÷ 5 = ₹2,40,000.
Months from 1 October 2026 to 31 March 2027 = 6. Amortisation for 2026-27 = ₹2,40,000 × 6 ÷ 12 = ₹1,20,000.
Carrying amount at 31 March 2027 = ₹12,00,000 − ₹1,20,000 = ₹10,80,000.

Answer: Amortisation for 2026-27 is ₹1,20,000 charged to the statement of profit and loss. Carrying amount at 31 March 2027 is ₹10,80,000.

Example 2

Y Ltd acquired a patent on 1 April 2024 for ₹20,00,000 and amortised it on the straight-line method over 10 years with nil residual value. At 31 March 2027 the company reviews the asset and estimates that the remaining useful life is 4 years, not 7 years. Compute the amortisation for 2027-28 and state the accounting treatment of the change.

Show the solution

Original annual amortisation = ₹20,00,000 ÷ 10 = ₹2,00,000.
Amortisation for 3 years (2024-25, 2025-26, 2026-27) = ₹2,00,000 × 3 = ₹6,00,000.
Carrying amount at 31 March 2027 = ₹20,00,000 − ₹6,00,000 = ₹14,00,000.
Revised remaining life = 4 years. Residual value = nil.
Revised annual amortisation = ₹14,00,000 ÷ 4 = ₹3,50,000 for 2027-28 and each following year.
Treatment: the revision is a change in accounting estimate under AS 5. It is applied prospectively. Amounts for earlier years are not restated, and the effect is disclosed as required.

Answer: Amortisation for 2027-28 is ₹3,50,000. The change is a change in estimate applied prospectively, with no restatement of earlier years.

Exam tips

Always show the date the asset became available for use. Examiners often hide it in the question, and it fixes the number of months.
If a question mentions a life of more than ten years, write the three consequences: rebuttal needs evidence, annual AS 28 recoverable amount estimate, and disclosure of reasons.
For review questions, write the carrying amount at the review date as a separate line. It earns a step mark even if the final figure is wrong.
In theory answers, use the order: provision, application to facts, conclusion. For example, state the presumption, then the facts given, then the amortisation period you adopt.
Do not mix up changes in estimate and changes in policy. A change in amortisation period or method on review is an estimate change under AS 26.

Practice questions from AS 26 Intangible Assets

Amortisation of Intangible Assets in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Amortisation of Intangible Assets: frequently asked questions

Is the 10-year limit in AS 26 compulsory?

No. It is a rebuttable presumption that the useful life will not exceed ten years from when the asset is available for use. You can use a longer period if you have evidence that the asset will last longer. You must then test the recoverable amount annually under AS 28 and disclose the reasons.

Which amortisation method should I use in the exam?

Use the method given in the question. If the question gives no method and the pattern of benefits is not clear, use the straight-line method. Use unit of production only when the question gives output or units data.

What residual value should I take for an intangible asset?

Take zero unless a third party has committed to buy the asset at the end of its useful life, or there is an active market from which the residual value can be found and that market will probably exist at the end of the life. If the question gives neither, use nil.

How often must the amortisation period and method be reviewed?

At least at each financial year-end. If the expected life or pattern of benefits has changed significantly, you change the period or method. The change is a change in accounting estimate, so you apply it to the current and future periods without restating the past.