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CA Intermediate · Advanced Accounting · AS 26 Intangible Assets

Mehta Pharma Ltd. purchased a patent on 1 April 2023 for Rs 40,00,000 with a legal life of 10 years. Management expects to use it for 8 years with nil residual value and uses the straight-line method. At 31 March 2025 the carrying amount is checked. What is the carrying amount (before any impairment)?

The carrying amount is Rs 30,00,000. The patent must be amortised over its estimated useful life of 8 years, not its 10-year legal life, giving Rs 5,00,000 annually. After two years accumulated amortisation is Rs 10,00,000, leaving Rs 30,00,000.

  1. ARs 30,00,000Correct
  2. BRs 32,00,000
  3. CRs 35,00,000
  4. DRs 28,00,000

Explanation

Amortisation is over the useful life of 8 years, not the legal life: 40,00,000/8 = Rs 5,00,000 per year. For two years it is Rs 10,00,000, so carrying amount is Rs 30,00,000. Using the 10-year legal life gives Rs 32,00,000, which is wrong.

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