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CA Intermediate · Advanced Accounting · AS 26 Intangible Assets

Kaveri Tech Ltd. acquired a software licence on 1 April 2023 for ₹60 lakh with a useful life of 5 years, straight-line, nil residual value. On 1 April 2025 the company incurred ₹12 lakh of subsequent expenditure that merely maintains the expected performance of the licence. What is the carrying amount on 31 March 2026?

The carrying amount is ₹24 lakh. Annual amortisation is ₹12 lakh, and three years give ₹36 lakh accumulated amortisation against cost of ₹60 lakh. The ₹12 lakh maintenance expenditure only preserves expected performance, so AS 26 requires it to be expensed rather than capitalised.

  1. A₹24 lakhCorrect
  2. B₹36 lakh
  3. C₹28.8 lakh
  4. D₹30 lakh

Explanation

Annual amortisation is 60/5 = ₹12 lakh. Over 3 years (FY24, FY25, FY26) it is ₹36 lakh, so carrying amount is 60 - 36 = ₹24 lakh. Subsequent expenditure that only maintains performance is expensed, not capitalised. Adding ₹12 lakh would give a wrong ₹36 lakh.

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