Difference Between AS 26 and Ind AS 38

Accounting Standard 26: The objective of AS 26 is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another Accounting Standard. AS 26 requires an enterprise to recognise an intangible asset if, and only if, certain criteria are met. AS 26 also specifies how to measure the carrying amount of intangible assets and requires certain disclosures about intangible assets.

Ind AS 38 Intangible Assets

The objective of Ind AS 38 is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another Standard. This Standard requires an entity to recognise an intangible asset if, and only if, specified criteria are met. The Standard also specifies how to measure the carrying amount of intangible assets and requires specified disclosures about intangible assets.

Intangible Asset is as an identifiable non-monetary asset without physical substance.

Difference Between AS 26 and Ind AS 38

AS 26 Ind AS 38
AS 26 deals with intangible assets retired from use and held for sale. Ind AS 38 does not deal with the same, as they are covered by Ind AS 105.
  Requires certain additional disclosures as compared to AS 26.
Change in the method of amortisation of intangibles is treated as change in accounting policy. Change in the method of amortisation of intangibles is treated as change in accounting estimate.
AS 26 does not permit revaluation of intangible asset. Under Ind AS 38, intangible assets may be revalued to fair value, if an active market exists for such asset.

AS 26 defines an intangible asset as:

  • an identifiable non-monetary asset
  • without physical substance
  • and held for:
  • use in production or supply of goods or services or
  • for rentals to others or
  • for administrative purposes.

Ind AS 38 defines an intangible asset as:

  • an identifiable non-monetary asset
  • without physical substance.

Hence, Ind AS 38 is much wider in scope, as compared to AS 26.

 

AS 26 specifically states that it is not applicable to:

  • discount or premium on borrowings
  • ancilliary costs incurred in connection with borrowings and
  • share issue expenses and discount allowed on the issue of shares.
Though Ind AS 38 is also not applicable to these items, it does not specifically or explicitly states the same, as these aspects are already covered by other Ind AS.
There is no such provision in AS 26.

Under Ind AS 38, if an intangible asset is acquired on deferred payment terms, the interest element should be separated from the total payment made and be expensed over the credit period, unless capitalised as per Ind AS 23 on borrowing costs.

Similarly, when an intangible asset is disposed off and the consideration is received on deferred payment basis, then also, the interest element has to be separated from the total consideration received and to be booked as finance income.

The existing AS 26 does not define identifiability, but merely states that to be identifiable, it is necessary that intangible asset is clearly distinguished from goodwill. An intangible asset will be said to be distinguished from goodwill, if it is separable, but separability is not a necessary condition for identifiability. Ind AS 38 provides a detailed guidance on how to identify an intangible asset.
On the other hand, AS 26 deals only with intangible assets acquired in amalgamation in the nature of purchase. Ind AS 38 deals in detail, w.r.t. the intangible assets acquired in a business combination.
AS 26 is silent on the treatment of subsequent expenditure incurred on an in-process R&D Project, acquired in a business combination. Ind AS 38 gives guidance on the treatment of such expenditure.

As per AS 26, intangible assets acquired:

  • free of charge or for nominal consideration
  • by way of government grant
  • are recognised at:
  • nominal value or
  • at acquisition cost, as appropriate
  • plus any expenditure incurred for making the asset ready for intended use.
As per Ind AS 38, when intangible assets are acquired free of charge or for nominal consideration by way of government grant, an entity should record both the grant and the intangible asset at fair value (as it is required by Ind AS 20 on government grants)
AS 26 is based on an assumption that the useful life of an intangible asset is always finite and is generally 10 years from the date the asset is available for use, unless otherwise proved. Ind AS 38 states that the useful life of an intangible asset can be infinite, and if so, then, such an intangible asset should not be amortised, but tested for impairment both annually and whenever there are indications of impairment.
AS 26 prohibits any change to be made in the  residual value of intangible asset.

Under Ind AS 38, the residual value of an intangible asset must be reviewed, at least annually.

If on such review, the residual value becomes equal to or greater than the asset’s carrying amount, amortisation charge is zero unless the residual value subsequently decreases to an amount below the asset’s carrying amount.

This is not explicitly stated in AS 26. Ind AS 36 specifically acknowledges the fact that the useful life of an intangible asset acquired by legal or contractual right may be shorter than the legal life of such intangible.
There is no such guidance in AS 26.

Under Ind AS 36, guidance is available on:

  • cessation of capitalisation of expenditure
  • de recognition of a part of intangible asset
  • useful life of a reacquired right in business combination

As per AS 26, when an intangible asset is acquired in exchange for non monetary asset, its cost is usually determined by reference to the fair market value of the consideration given (i.e. FMV of asset given).

It may be appropriate to consider also the fair market value of the asset acquired if this is more clearly evident.

If an intangible asset is acquired in exchange of a non-monetary asset, it should be recognised at the fair value of such non monetary given up unless:

  • the exchange transaction lacks commercial substance or
  • the fair value of the intangible asset received and the fair value of the asset given up is not reliably measurable.