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CA Intermediate · Advanced Accounting · AS 26 Intangible Assets

Sharma Foods Ltd. incurred the following during the year: advertising campaign Rs 6,00,000; staff training costs Rs 2,50,000; start-up costs of a new branch Rs 3,50,000; and purchase of a software licence for the accounting system Rs 4,00,000 that meets the recognition criteria. How much should be recognised as an intangible asset?

Only Rs 4,00,000 is capitalised as an intangible asset. AS 26 requires advertising, staff training and start-up expenditure to be expensed when incurred, so these Rs 12,00,000 go to profit and loss. The software licence meets the criteria and is recognised.

  1. ARs 16,00,000
  2. BRs 4,00,000Correct
  3. CRs 7,50,000
  4. DRs 10,00,000

Explanation

Advertising, training and start-up costs are expensed under AS 26 as they do not create a controlled identifiable resource. Only the software licence of Rs 4,00,000 qualifies. Rs 7,50,000 wrongly adds training and start-up, for example.

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