Imagine Rajesh & Co. Pvt. Ltd. spends ₹40 lakhs developing a new software platform in-house. Should that ₹40 lakhs sit on the balance sheet as an asset, or be written off as an expense? That's exactly the question AS 26 – Intangible Assets answers.
An intangible asset is an identifiable, non-monetary asset that has no physical substance — think patents, copyrights, software, trademarks, and licenses. The word identifiable is key: it must be separable from the business (you can sell it, license it, or exchange it independently) OR it must arise from a legal/contractual right. Goodwill you've built internally — say, your brand reputation earned over years — does not qualify because you can't reliably measure its cost. Internally generated goodwill is never capitalised under AS 26.
For an intangible to be recognised as an asset, two conditions must both be met: (1) it is probable that future economic benefits will flow to the enterprise, and (2) the cost can be measured reliably. The big practical battleground here is internally generated intangibles, and AS 26 splits the process into two phases. The Research phase — original investigation to gain new knowledge — must always be expensed immediately. No exceptions. The Development phase — applying findings to a plan or design for production — can be capitalised, but only if all six criteria are satisfied: technical feasibility, intention to complete, ability to use/sell, how it will generate benefits, availability of resources to complete, and ability to reliably measure expenditure. A useful mnemonic many students use is TIAHAR (Technical, Intention, Ability, How, Availability, Reliable measurement). If even one criterion is missing, expense it.
Amortisation must begin when the asset is available for use. AS 26 sets a rebuttable presumption of 10 years as the maximum useful life. If you believe the asset will last longer, you can justify it — but you'll face greater scrutiny and must disclose reasons. Unlike Ind AS 38 (which allows indefinite useful life), AS 26 does not. This distinction is a favourite exam trap. Straight-line method is most common, but other methods are allowed if they better reflect consumption of benefits. This topic is asked frequently as a 5–8 mark question, often as a classification problem or a note to accounts exercise.