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CA Intermediate · Advanced Accounting · AS 26 Intangible Assets

Anand Traders Ltd. acquired a franchise right on 1 October 2025 by paying Rs 12 lakh immediately and Rs 6 lakh as legal and registration fees; it also incurred Rs 1 lakh on advertising to launch the franchise and Rs 2 lakh on initial operating losses. The franchise has a 6-year life, straight line, nil residual. What is the amortisation for the year ended 31 March 2026?

Amortisation is Rs 1.50 lakh. The capitalised cost is Rs 18 lakh, being the Rs 12 lakh price plus Rs 6 lakh directly attributable legal fees; advertising and operating losses are expensed. Dividing by six years gives Rs 3 lakh a year, so six months is Rs 1.50 lakh.

  1. ARs 1.50 lakhCorrect
  2. BRs 1.00 lakh
  3. CRs 0.75 lakh
  4. DRs 1.25 lakh

Explanation

Cost includes purchase price and directly attributable legal fees: 12 + 6 = Rs 18 lakh. Advertising and initial operating losses are expensed. Annual amortisation = 18/6 = Rs 3 lakh; for 6 months (1 Oct to 31 Mar) = Rs 1.50 lakh. Rs 1.00 lakh uses only the Rs 12 lakh price.

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