CA Intermediate · Advanced Accounting · AS 26 Intangible Assets

Sundaram Textiles Ltd incurred the following during the year: (i) ₹8 lakh on staff training for a new ERP, (ii) ₹5 lakh on an advertising campaign, (iii) ₹6 lakh on pre-opening costs of a new showroom, and (iv) ₹20 lakh to purchase a licence to use a patented dyeing technology for 5 years from the patent holder. Which expenditure should be recognised as an intangible asset under AS 26?

The ₹20 lakh paid for the patented technology licence is recognised as an intangible asset because it is identifiable, controlled and brings measurable future benefits. Training, advertising and pre-opening costs are expensed as incurred under AS 26, since they do not create a recognisable asset.

AStaff training costs of ₹8 lakh
BAdvertising campaign costs of ₹5 lakh
CPurchase of the technology licence for ₹20 lakhCorrect
DPre-opening costs of ₹6 lakh

Explanation

AS 26 requires expenditure on training, advertising and start-up or pre-opening activities to be recognised as an expense when incurred. A separately purchased licence is identifiable, controlled by the entity and expected to yield future economic benefits, and its cost can be measured reliably. It therefore qualifies as an intangible asset.

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