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CA Intermediate · Advanced Accounting · AS 26 Intangible Assets

Ojas Media Ltd. acquired a film distribution right on 1 April 2023 for ₹120 lakh, amortised straight-line over 6 years with nil residual value. The management reviewed the asset on 1 April 2025 and estimated that the remaining useful life is only 2 more years instead of the 4 originally remaining. Subsequently, on 1 October 2026 the company sold the right for ₹30 lakh. What is the profit or loss on sale to be recognised in the year ended 31 March 2027?

The sale results in a profit of ₹10 lakh. After two years of amortisation the carrying amount was ₹80 lakh; the revised two-year life gives ₹40 lakh a year, so by 1 October 2026 carrying amount is ₹20 lakh, against sale proceeds of ₹30 lakh.

  1. ALoss of ₹10 lakh
  2. BProfit of ₹10 lakhCorrect
  3. CProfit of ₹20 lakh
  4. DLoss of ₹30 lakh

Explanation

Annual amortisation for 2 years is 20, so accumulated 40 and carrying amount at 1 April 2025 is ₹80 lakh. Revised life is 2 years, so 40 per year (change in estimate, applied prospectively). Year to 31 March 2026: carrying 40 at 1 April 2026. Amortisation for 6 months to 1 October 2026 = 20, carrying amount 20. Sale ₹30 lakh gives profit of ₹10 lakh. A loss option arises by ignoring the revision of estimate.

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