AS 26 prescribes the accounting treatment for intangible assets — identifiable non-monetary assets without physical substance, such as patents, copyrights, licences, computer software, and certain development costs. As businesses increasingly derive value from intellectual property and other intangibles rather than physical assets, how these are recognised, measured, and amortised matters more and more. AS 26 sets a deliberately cautious framework, particularly around internally generated intangibles, to prevent enterprises from capitalising expenditure whose future benefit is uncertain.
Objective and scope
The objective is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another standard. An intangible asset is an identifiable non-monetary asset, without physical substance, held for use in the production or supply of goods or services, for rental to others, or for administrative purposes. The standard requires an enterprise to recognise an intangible asset only if certain criteria are met, and it specifies how to measure the carrying amount and what disclosures to make. Certain intangibles are outside its scope where dealt with by other standards (for example, intangibles held for sale in the ordinary course of business, deferred tax assets, and goodwill arising on amalgamation or consolidation, which are addressed elsewhere).
Recognition criteria
An intangible asset is recognised if, and only if: it is probable that the future economic benefits attributable to the asset will flow to the enterprise; and the cost of the asset can be measured reliably. In addition, the item must meet the definition of an intangible asset — in particular, it must be identifiable (capable of being separated from the enterprise, or arising from contractual or legal rights), the enterprise must control the resource, and it must give rise to future economic benefits. Identifiability distinguishes an intangible asset from goodwill.
An intangible asset is measured initially at cost. The cost of a separately acquired intangible comprises its purchase price and any directly attributable expenditure on preparing the asset for its intended use.
Internally generated intangibles — research and development
AS 26 is especially cautious about internally generated intangible assets, and draws a firm line between research and development:
Research phase. Expenditure on research (original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding) is recognised as an expense when incurred. No intangible asset arising from research is recognised, because at the research stage an enterprise cannot demonstrate that an asset exists that will generate probable future economic benefits.
Development phase. An intangible asset arising from development is recognised only if the enterprise can demonstrate all of a set of stringent conditions: the technical feasibility of completing the intangible asset so that it will be available for use or sale; its intention to complete and use or sell it; its ability to use or sell it; how it will generate probable future economic benefits (for example, the existence of a market); the availability of adequate technical, financial, and other resources to complete the development; and its ability to measure reliably the expenditure attributable to the intangible asset during its development. Only if every one of these is met can development expenditure be capitalised; otherwise it is expensed.
Certain internally generated items are never recognised as intangible assets — notably internally generated goodwill, and internally generated brands, mastheads, publishing titles, customer lists, and similar items, because their cost cannot be distinguished from the cost of developing the business as a whole.
Amortisation and the useful-life presumption
The depreciable amount of an intangible asset is amortised on a systematic basis over the best estimate of its useful life. A distinctive and important feature of AS 26 is a rebuttable presumption that the useful life of an intangible asset will not exceed ten years from the date the asset is available for use. This presumption can be rebutted, but only with persuasive evidence that the useful life is longer — reflecting the difficulty of demonstrating that an intangible will generate benefits far into the future. The amortisation method should reflect the pattern in which the asset's economic benefits are consumed; if that pattern cannot be determined reliably, the straight-line method is used. The residual value is generally assumed to be zero unless there is a commitment by a third party to purchase the asset at the end of its useful life or an active market exists from which residual value can be determined. The amortisation period and method are reviewed at least at each financial year-end.
Subsequent expenditure, impairment, and retirement
Subsequent expenditure on an intangible asset is added to its cost only if it enables the asset to generate future economic benefits in excess of its originally assessed standard of performance and can be measured and attributed reliably; otherwise it is expensed. Intangible assets are also subject to impairment review (under AS 28) where there is an indication of impairment, and additionally the recoverable amount should be estimated at least annually for an intangible not yet available for use and for one amortised over a period exceeding ten years. On retirement or disposal, the asset is derecognised and the gain or loss (difference between net disposal proceeds and carrying amount) is recognised in the profit and loss account.
Disclosure
Disclosures include, for each class of intangible assets, the useful lives or amortisation rates used; the amortisation methods used; the gross carrying amount and accumulated amortisation at the beginning and end of the period; and a reconciliation of the carrying amount showing additions, retirements, amortisation, impairment losses, and other changes. Where an intangible asset is amortised over more than ten years, the reasons why the ten-year presumption is rebutted are disclosed. Research and development expenditure recognised as an expense during the period is also disclosed.
A brief illustration
A company acquires a patent for ₹50 lakh — a separately acquired intangible with a probable future benefit and a reliably measurable cost, so it is recognised at ₹50 lakh and amortised over its useful life (say 10 years, giving ₹5 lakh a year). Separately, the company runs an internal project. Its research phase costs — investigating new formulations — are expensed as incurred. Later, once the project reaches development and the company can demonstrate all six conditions (feasibility, intention and ability to complete and use it, probable future benefits, adequate resources, and reliable cost measurement), further development expenditure is capitalised as an intangible asset and amortised once the asset is available for use. Its internally generated brand, however, is never capitalised, because its cost cannot be separated from the cost of developing the business.
How AS 26 compares with Ind AS 38
AS 26 corresponds to Ind AS 38, Intangible Assets, and the two share the same recognition criteria, the same research-versus-development distinction (research expensed, development capitalised only when the stringent conditions are met), and the same prohibition on recognising internally generated goodwill and brands. The most significant difference concerns useful life. AS 26 applies a rebuttable presumption of a maximum ten-year useful life and requires all intangibles to be amortised. Ind AS 38, by contrast, distinguishes between intangible assets with finite useful lives (which are amortised) and those with indefinite useful lives (which are not amortised but are tested for impairment at least annually) — there is no ten-year presumption. Ind AS 38 also permits a revaluation model (carrying an intangible at fair value where an active market exists), which AS 26 does not offer in the same form. So the frameworks agree closely on recognition but differ on the ceiling for useful life, the possibility of indefinite-life (non-amortised) intangibles, and revaluation.
Common pitfalls
Recurring issues include capitalising research expenditure (which must be expensed); capitalising development expenditure without demonstrating all the required conditions; recognising internally generated brands, customer lists, or goodwill; amortising over a period exceeding ten years without persuasive evidence to rebut the presumption; and failing to review the amortisation period and method at year-end.
Why this is cleaner on a unified system
Accounting for intangible assets — tracking cost, distinguishing research from development expenditure, capitalising eligible development costs, and amortising over the appropriate life — is more reliable when the project cost records and the ledger sit in one connected system. When development expenditure is captured against the project in a single source of truth and flows into the asset records and the accounts, applying the recognition conditions, amortising correctly, and producing the reconciliations for disclosure is more straightforward than reconciling separate project ledgers against the accounts.
This article is a detailed educational summary of AS 26 in plain language. It is not a substitute for the full text of the standard. Accounting standards are amended from time to time; always verify the current, authoritative text of AS 26 as issued by the ICAI before relying on it, and consult a qualified chartered accountant for application to your specific circumstances.