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CA Foundation · Accounting · Depreciation and Amortisation

Under AS 26 (Intangible Assets), which of the following expenditures must be recognised as an expense when incurred rather than capitalised as an intangible asset?

Expenditure on internally generated brands, mastheads and customer lists must be expensed when incurred. AS 26 does not allow them to be recognised as assets because their cost cannot be separated from developing the business, whereas purchased trademarks, licences and copyrights are capitalised.

  1. APurchase price of a trademark acquired from another company
  2. BExpenditure on internally generated brands, mastheads and customer listsCorrect
  3. CCost of acquiring a licence to use third-party software for several years
  4. DPurchase price of copyright bought from its author

Explanation

AS 26 prohibits recognising internally generated brands, mastheads, publishing titles, customer lists and similar items as intangible assets, because their cost cannot be distinguished from the cost of developing the business as a whole. Purchased trademarks, licences and copyrights have a measurable cost and are capitalised.

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