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CA Intermediate · Advanced Accounting · AS 26 Intangible Assets

Sundaram Textiles Ltd has built a well-known brand, 'SundaraSilk', over 20 years through advertising and quality control. During the year it spent Rs 15 lakh on activities that strengthened the brand. The finance manager wants to show the brand as an intangible asset in the balance sheet. Under AS 26, how should the Rs 15 lakh be treated?

The Rs 15 lakh must be charged to the profit and loss statement when incurred. AS 26 prohibits recognising internally generated brands as intangible assets, because their cost cannot be separated from the cost of developing the business as a whole.

  1. ARecognise it as an intangible asset because the brand generates future economic benefits
  2. BRecognise it as an expense when incurred because internally generated brands are not recognised as intangible assetsCorrect
  3. CCapitalise it as goodwill and amortise it over a period not exceeding 10 years
  4. DCarry it forward as deferred revenue expenditure and write it off over 5 years

Explanation

AS 26 states that internally generated brands, mastheads, publishing titles, customer lists and similar items cannot be distinguished from the cost of developing the business as a whole. Expenditure on them is therefore recognised as an expense when incurred. Treating the spending as an asset, goodwill or deferred expenditure is not permitted.

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