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CA Intermediate · Advanced Accounting · AS 26 Intangible Assets

Kaveri Pharma Ltd. acquired a patent on 1 April 2023 for Rs 40,00,000 with a legal life of 10 years. Management expects it to generate benefits for only 8 years, with nil residual value, and uses straight-line amortisation. On 1 April 2025 the company spent Rs 4,00,000 on a successful defence of the patent in a lawsuit; this restores the original expected benefits, and the remaining useful life stays at 6 years from that date. What is the carrying amount of the patent on 31 March 2026, if the defence cost is capitalised?

Recomputation needed.

  1. ARs 34,00,000Correct
  2. BRs 30,00,000
  3. CRs 28,00,000
  4. DRs 29,33,333

Explanation

Amortisation is Rs 5,00,000 a year over 8 years. Up to 31 March 2025 two years are amortised, so book value is Rs 30,00,000. Adding the Rs 4,00,000 defence cost gives Rs 34,00,000, amortised over the remaining 6 years at Rs 5,66,667 for 2025-26. Carrying amount is Rs 34,00,000 - 5,66,667 = Rs 28,33,333. The option showing Rs 34,00,000 is the pre-amortisation figure and is wrong; so recompute carefully.

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