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CA Intermediate · Advanced Accounting · AS 26 Intangible Assets

Ravi Ltd. acquired a franchise right by paying Rs 5,00,000 in cash and issuing 10,000 equity shares of face value Rs 10 each, whose fair value was Rs 40 per share. The fair value of the shares is reliably measurable. What is the cost of the intangible asset?

The cost is Rs 9,00,000. When an intangible is acquired partly for shares, the consideration is measured at the fair value of the shares issued, here 10,000 shares at Rs 40 equal Rs 4,00,000, which is added to the Rs 5,00,000 cash paid.

  1. ARs 5,00,000
  2. BRs 6,00,000
  3. CRs 9,00,000Correct
  4. DRs 10,00,000

Explanation

Cost includes cash plus fair value of shares issued: 5,00,000 + (10,000 x 40 = 4,00,000) = 9,00,000. Using face value gives Rs 6,00,000, which is wrong because fair value is the measure of consideration.

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