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CA Intermediate · Advanced Accounting · AS 26 Intangible Assets

Narmada Industries Ltd bought a patent on 1 July 2024 for Rs 30 lakh with an estimated useful life of 10 years, amortised on the straight-line method with nil residual value, on a time basis. The financial year ends 31 March. On 31 March 2026, management reviewed the patent and estimated that its remaining useful life from 1 April 2026 is 5 years. What is the amortisation charge for the year ending 31 March 2027?

The charge is Rs 4.95 lakh. The carrying amount at 31 March 2026 is Rs 24.75 lakh after Rs 5.25 lakh of amortisation, and the revised useful life is a change in estimate applied prospectively, so Rs 24.75 lakh is spread over the remaining 5 years.

  1. ARs 3.00 lakh
  2. BRs 4.95 lakhCorrect
  3. CRs 5.55 lakh
  4. DRs 6.00 lakh

Explanation

Amortisation for 2024-25 = 30/10 x 9/12 = Rs 2.25 lakh; for 2025-26 = Rs 3.00 lakh. Carrying amount at 31 March 2026 = 30 - 5.25 = Rs 24.75 lakh. A change in useful life is a change in estimate applied prospectively, so the charge = 24.75/5 = Rs 4.95 lakh. Rs 5.55 lakh wrongly ignores the 2025-26 amortisation.

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