ASLB 31 Intangible Assets

Accounting Standard for Local Bodies (ASLB) 31

Intangible Assets
Contents
Paragraphs
OBJECTIVE 1
SCOPE 2–15
Intangible Heritage Assets 11–15
DEFINITIONS 16–25
Intangible Assets 17–20
Control of an Asset 21–24
Future Economic Benefits or Service Potential 25
RECOGNITION AND MEASUREMENT 26–65
Separate Acquisition 32–39
Subsequent Expenditure on an Acquired In-process
Research and Development Project 40–41
Intangible Assets Acquired through Non-Exchange
Transactions 42–43
Exchanges of Assets 44–45
Internally Generated Goodwill 46–48
Internally Generated Intangible Assets 49–51
Research Phase 52–54
Development Phase 55–62
Cost of an Internally Generated Intangible Asset 63–65
RECOGNITION OF AN EXPENSE 66–70
Past Expenses not to be Recognised as an Asset 70
SUBSEQUENT MEASUREMENT 71–86
USEFUL LIFE 87–95
Compendium of ASLBs

AMORTISATION 96-105
Amortisation Period and Amortisation Method 96–98
Residual Value 99–102
Review of Amortisation Period and Amortisation Method 103–105
RECOVERABILITY OF THE CARRYING AMOUNT—
IMPAIRMENT LOSSES 110
RETIREMENTS AND DISPOSALS 111–116
DISCLOSURE 117–127
General 117–122
Research and Development Expenditure 125–126
Other Information 127

APPENDICES:
APPENDIX A: ILLUSTRATIVE APPLICATION OF THE ACCOUNTING
STANDARD TO COMPUTER SOFTWARE AND
WEBSITE COSTS
APPENDIX B: ILLUSTRATIVE ACCOUNTING TREATMENT AND
DISCLOSURES
APPENDIX 1: COMPARISON WITH IPSAS 31, ‘INTANGIBLE ASSETS’
APPENDIX 2: COMPARISON WITH EXISTING AS 26, ‘INTANGIBLE
ASSETS’

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 Accounting Standard for Local Bodies (ASLB) 31

Intangible Assets
(This Accounting Standard includes paragraphs set in bold italic type and
plain type, which have equal authority. Paragraphs in bold italic type indicate
the main principles. This Accounting Standard should be read in the context
of its objective and the Preface to the Accounting Standards for Local
Bodies1).
The Accounting Standard for Local Bodies (ASLB) 31, ‘Intangible Assets ’,
issued by the Council of the Institute of Chartered Accountants of India, will
be recommendatory in nature in the initial years for use by the local bodies.
This Standard will be mandatory for Local Bodies in a State from the date
specified in this regard by the State Government concerned2.
The following is the text of the Accounting Standard for Local Bodies.

Objective
1. The objective of this Standard 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.

Scope
2. An entity that prepares and presents financial statements under
the accrual basis of accounting should apply this Standard in
accounting for intangible assets.
3. This Standard should be applied in accounting for intangible
assets, except:

1 Attention is specifically drawn to paragraph 4.2 of the ‘Preface to the Accounting

Standards for Local Bodies’, according to which Accounting Standards are intended
to apply only to items which are material.
2 Reference may be made to the paragraph 7.1 of the ‘Preface to the Accounting

Standards for Local Bodies’ providing the discussion on the compliance with the
Accounting Standards for Local Bodies.
Compendium of ASLBs

(a) Intangible assets that are within the scope of another
Standard;
(b) Financial assets;3
(c) The recognition and measurement of exploration and
evaluation of mineral resources;
(d) Expenditure on the development and extraction of minerals,
oil, natural gas and similar non-regenerative resources;
(e) [Refer to Appendix 1]
(f) [Refer to Appendix 1]
(g) Powers and rights conferred by legislation, the constitution,
or by equivalent means;
(h) [Refer to Appendix 1]
(i) [Refer to Appendix 1]
(j) [Refer to Appendix 1]
(k) In respect of intangible heritage assets. However, the
disclosure requirements of paragraphs 117–127 apply to
those heritage assets that are recognised.
4. This Standard applies to all entities described as local bodies in
the Preface to the Accounting Standards for Local Bodies4.

3 A financial asset is any asset that is:

(a) cash;
(b) an equity instrument of another entity;
(c) a contractual right: (i) to receive cash or another financial asset from
another entity; or (ii) to exchange financial assets or financial liabilities with
another entity under conditions that are potentially favourable to the entity;
or
(d) a contract that will or may be settled in the entity’s own equity instruments
and is: (i) a non-derivative for which the entity is or may be obliged to
receive a variable number of the entity’s own equity instruments; or (ii) a
derivative that will or may be settled other than by the exchange of a fixed
amount of cash or another financial asset for a fixed number of the entity’s
own equity instruments.
4 Refer paragraph 1.3 of the ‘Preface to the Accounting Standards for Local Bodies’.

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5. [Refer to Appendix 1]
6. If another ASLB prescribes the accounting for a specific type of
intangible asset, an entity applies that ASLB instead of this Standard.
For example, this Standard does not apply to:
(a) Intangible assets held by an entity for sale in the ordinary
course of operations (see ASLB 11, ‘Construction Contracts’,
and ASLB 12, ‘Inventories’);
(b) Leases that are within the scope of ASLB on, ‘Leases’5;
(c) Assets arising from employee benefits (see ASLB on, ‘Employee
Benefits’6); and
(d) The recognition and measurement of some financial assets are
covered by ASLB on, ‘Consolidated and Separate Financial
Statements’, ASLB on, ‘Investments in Associates’, and ASLB
on, ‘Interests in Joint Ventures’7; and
(e) Recognition and initial measurement of service concession
assets that are within the scope of ASLB on, ‘Service
Concession Arrangements: Grantor’8. However, this standard
applies to the subsequent measurement and disclosure of such
assets.
7. Some intangible assets may be contained in or on a physical
substance such as a compact disc (in the case of computer software),
legal documentation (in the case of a licence or patent), or film. In
determining whether an asset that incorporates both intangible and
tangible elements should be treated under ASLB 17, ‘Property, Plant,
and Equipment’, or as an intangible asset under this Standard, an
entity uses judgement to assess which element is more significant. For
example, if the software is not an integral part of the related hardware,
computer software is treated as an intangible asset.
8. This Standard applies to, among other things, expenditure on
advertising, training, start-up, research and development activities.
Research and development activities are directed to the development

5 The Accounting Standard for Local Bodies is under preparation.
6 The Accounting Standard for Local Bodies is under preparation.
7 The Accounting Standards for Local Bodies are under preparation.
8 The Accounting Standard for Local Bodies is under preparation.

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Compendium of ASLBs

of knowledge. Therefore, although these activities may result in an
asset with physical substance (e.g., a prototype), the physical element
of the asset is secondary to its intangible component, i.e., the
knowledge embodied in it.
9. In the case of a finance lease, the underlying asset may be either
tangible or intangible. After initial recognition, a lessee accounts for an
intangible asset held under a finance lease in accordance with this
Standard. Rights under licensing agreements for items such as motion
picture films, video recordings, plays, manuscripts, patents, and
copyrights are excluded from the scope of ASLB on ‘Leases’ and are
within the scope of this Standard.
10. Exclusions from the scope of a Standard may occur if activities or
transactions are so specialised that they give rise to accounting issues
that may need to be dealt with in a different way. Such issues arise in
the accounting for extractive activities such as expenditure on the
exploration for, or development and extraction of, mineral deposits.
Therefore, this Standard does not apply to expenditure on such
activities by the Local Bodies.

Intangible Heritage Assets
11. This Standard does not require an entity to recognise intangible
heritage assets that would otherwise meet the definition of, and
recognition criteria for, intangible assets. If an entity does recognise
intangible heritage assets, it must apply the disclosure requirements of
this Standard and may, but is not required to, apply the measurement
requirements of this Standard.
12. Some intangible assets are described as intangible heritage assets
because of their cultural, environmental, or historical significance.
Examples of intangible heritage assets include recordings of
significant historical events or collectible coins. Certain characteristics,
including the following, are often displayed by intangible heritage
assets (although these characteristics are not exclusive to such
assets):
(a) Their value in cultural, environmental, and historical terms is
unlikely to be fully reflected in a financial value based purely on
a market price;

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(b) Legal and/or statutory obligations may impose prohibitions or
severe restrictions on disposal by sale;
(c) Their value may increase over time; and
(d) It may be difficult to estimate their useful lives, which in some
cases could be several hundred years.
13. Local Bodies may have large holdings of intangible heritage assets
that have been acquired over many years and by various means,
including purchase, donation, bequest, and sequestration. These
assets are rarely held for their ability to generate cash inflows, and
there may be legal or social obstacles to using them for such
purposes.
14. Some intangible heritage assets have future economic benefits or
service potential other than their heritage value, for example, royalties
paid to the entity for use of an historical recording. In these cases, an
intangible heritage asset may be recognised and measured on the
same basis as other items of cash-generating intangible assets. For
other intangible heritage assets, their future economic benefit or
service potential is limited to their heritage characteristics. The
existence of both future economic benefits and service potential can
affect the choice of measurement base.
15. The disclosure requirements in paragraphs 117–124 require entities to
make disclosures about recognised intangible assets. Therefore,
entities that recognise intangible heritage assets are required to
disclose in respect of those assets such matters as, for example:
(a) The measurement basis used;
(b) The amortisation method used, if any;
(c) The gross carrying amount;
(d) The accumulated amortisation at the end of the period, if any;
and
(e) A reconciliation of the carrying amount at the beginning and end
of the period showing certain components thereof.

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Definitions
16. The following terms are used in this Standard with the meanings
specified:
An active market is a market where all the following conditions
exist:
(a) the items traded within the market are homogeneous;
(b) willing buyers and sellers can normally be found at any
time; and
(c) prices are available to the public.
Amortisation is the systematic allocation of the depreciable
amount of an intangible asset over its useful life.
Carrying amount is the amount at which an asset is recognised in
the balance sheet, net of any accumulated amortisation and
accumulated impairment losses thereon.
Depreciable amount is the cost of an asset less its residual value.
Development is the application of research findings or other
knowledge to a plan or design for the production of new or
substantially improved materials, devices, products, processes,
systems or services before the start of commercial production or
use.
Fair value of an asset is the amount for which that asset could be
exchanged between knowledgeable, willing parties in an arm's
length transaction.
An impairment loss is the amount by which the carrying amount
of an asset exceeds its recoverable amount.
An intangible asset is an identifiable non-monetary asset without
physical substance.
Monetary assets are money held and assets to be received in
fixed or determinable amounts of money.
Non-monetary assets are assets other than monetary assets.

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Research is original and planned investigation undertaken with
the prospect of gaining new scientific or technical knowledge and
understanding.
Residual value is the amount which an entity expects to obtain for
an asset at the end of its useful life after deducting the expected
costs of disposal.
Useful life is either:
(a) the period of time over which an asset is expected to be
used by the entity; or
(b) the number of production or similar units expected to be
obtained from the asset by the entity.

Intangible Assets
17. Entities may expend resources, or incur liabilities, on the acquisition,
development, maintenance, or enhancement of intangible resources
such as scientific or technical knowledge, design and implementation
of new processes, or systems, licences, intellectual property, and
trademarks (including brand names and publishing titles). Common
examples of items encompassed by these broad headings are
computer software, patents, copyrights, motion picture films, and right
to use water resource etc.
18. Not all the items described in paragraph 17 meet the definition of an
intangible asset, i.e., identifiability, control over a resource, and
existence of future economic benefits or service potential. If an item
within the scope of this Standard does not meet the definition of an
intangible asset, expenditure to acquire it or generate it internally is
recognised as an expense when it is incurred.
19. An asset is identifiable if it either:
(a) Is separable, i.e., is capable of being separated or divided
from the entity and sold, transferred, licensed, rented, or
exchanged, either individually or together with a related
contract, identifiable asset or liability, regardless of
whether the entity intends to do so; or
(b) Arises from binding arrangements (including rights from
contracts or other legal rights), regardless of whether those

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rights are transferable or separable from the entity or from
other rights and obligations.
20. For the purposes of this Standard, a binding arrangement describes an
arrangement that confers similar rights and obligations on the parties
to it as if it were in the form of a contract.

Control of an Asset
21. An entity controls an asset if the entity has the power to obtain the
future economic benefits or service potential flowing from the
underlying resource and to restrict the access of others to those
benefits or that service potential. The capacity of an entity to control
the future economic benefits or service potential from an intangible
asset would normally stem from legal rights that are enforceable in a
court of law. In the absence of legal rights, it is more difficult to
demonstrate control. However, legal enforceability of a right is not a
necessary condition for control because an entity may be able to
control the future economic benefits or service potential in some other
way.
22. Scientific or technical knowledge may give rise to future economic
benefits or service potential. An entity controls those benefits or that
service potential if, for example, the knowledge is protected by legal
rights such as copyrights, a restraint of trade agreement (where
permitted), or by a legal duty on employees to maintain confidentiality.
23. An entity may have a team of skilled staff and may be able to identify
incremental staff skills leading to future economic benefits or service
potential from training. The entity may also expect that the staff will
continue to make their skills available to the entity. However, an entity
usually has insufficient control over the expected future economic
benefits or service potential arising from a team of skilled staff and
from training for these items to meet the definition of an intangible
asset. For a similar reason, specific management or technical talent is
unlikely to meet the definition of an intangible asset, unless it is
protected by legal rights to use it and to obtain the future economic
benefits or service potential expected from it, and it also meets the
other parts of the definition.

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24. An entity may have a portfolio of users of its services or its success
rate in reaching intended users of its services and expect that,
because of its efforts in building relationships with users of its
services, those users will continue to use its services. However, in the
absence of legal rights to protect, or other ways to control the
relationships with users of a service or the loyalty of those users, the
entity usually has insufficient control over the expected economic
benefits or service potential from relationships with users of a service
and loyalty for such items (e.g., portfolio of users of a service, market
shares or success rates of a service, relationships with, and loyalty of,
users of a service) to meet the definition of an intangible assets.

Future Economic Benefits or Service Potential
25. The future economic benefits or service potential flowing from an
intangible asset may include revenue from the sale of products or
services, cost savings, or other benefits resulting from the use of the
asset by the entity. For example, the use of intellectual property in a
production or service process may reduce future production or service
costs or improve service delivery rather than increase future revenues
(e.g., an on-line system that allows citizens to operate transactions
more quickly on-line, resulting in a reduction in office staff required to
perform this function while increasing the speed of processing).

Recognition and Measurement
26. The recognition of an item as an intangible asset requires an entity to
demonstrate that the item meets:
(a) The definition of an intangible asset (see paragraphs 17–25);
and
(b) The recognition criteria (see paragraphs 28–30).
This requirement applies to the cost measured at recognition (the cost
in an exchange transaction or to internally generate an intangible
asset, or the nominal value of an intangible asset acquired through a
non-exchange transaction) and those incurred subsequently to add to,
replace part of, or service it.
27. The nature of intangible assets is such that, in many cases, there are
no additions to such an asset or replacements of part of it.

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Accordingly, most subsequent expenditures are likely to maintain the
expected future economic benefits or service potential embodied in an
existing intangible asset rather than meet the definition of an intangible
asset and the recognition criteria in this Standard. In addition, it is
often difficult to attribute subsequent expenditure directly to a
particular intangible asset rather than to the entity’s operations as a
whole. Therefore, only rarely will subsequent expenditure—
expenditure incurred after the initial recognition of an acquired
intangible asset or after completion of an internally generated
intangible asset be recognised in the carrying amount of an asset.
Consistent with paragraph 61, subsequent expenditure on brands,
mastheads, publishing titles, lists users of a service, and items similar
in substance (whether externally acquired or internally generated) is
always recognised in the income and expenditure statement. This is
because such expenditure cannot be distinguished from expenditure to
develop the entity’s operations as a whole.
28. An intangible asset should be recognised if, and only if:
(a) It is probable that the expected future economic benefits or
service potential that are attributable to the asset will flow
to the entity; and
(b) The cost of the asset can be measured reliably.
29. An entity should assess the probability of expected future
economic benefits or service potential using reasonable and
supportable assumptions that represent management’s best
estimate of the set of economic conditions that will exist over the
useful life of the asset.
30. An entity uses judgement to assess the degree of certainty attached to
the flow of future economic benefits or service potential that are
attributable to the use of the asset on the basis of the evidence
available at the time of initial recognition, giving greater weight to
external evidence.
31. An intangible asset should be measured initially at cost in
accordance with paragraphs 32–43. Where an intangible asset is
acquired through a non-exchange transaction, its initial cost at
the date of acquisition, should be measured at its nominal value
as at that date.

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Separate Acquisition
32. Normally, the price an entity pays to acquire separately an intangible
asset will reflect expectations about the probability that the expected
future economic benefits or service potential embodied in the asset will
flow to the entity. In other words, the entity expects there to be an
inflow of economic benefits or service potential, even if there is
uncertainty about the timing or the amount of the inflow. Therefore, the
probability recognition criterion in paragraph 28(a) is always
considered to be satisfied for separately acquired intangible assets.
33. In addition, the cost of a separately acquired intangible asset can
usually be measured reliably. This is particularly so when the purchase
consideration is in the form of cash or other monetary assets.
34. The cost of a separately acquired intangible asset comprises:
(a) Its purchase price, including import duties and non-refundable
purchase taxes, after deducting trade discounts and rebates;
and
(b) Any directly attributable cost of preparing the asset for its
intended use.
35. Examples of directly attributable costs are:
(a) Costs of employee benefits (as defined in ASLB on ‘Employee
Benefits’) arising directly from bringing the asset to its working
condition;
(b) Professional fees arising directly from bringing the asset to its
working condition; and
(c) Costs of testing whether the asset is functioning properly.
36. Examples of expenditures that are not part of the cost of an intangible
asset are:
(a) Costs of introducing a new product or service (including costs of
advertising and promotional activities);
(b) Costs of conducting operations in a new location or with a new
class of users of a service (including costs of staff training); and
(c) Administration and other general overhead costs.

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37. Recognition of costs in the carrying amount of an intangible asset
ceases when the asset is in the condition necessary for it to be
capable of operating in the manner intended by management.
Therefore, costs incurred in using or redeploying an intangible asset
are not included in the carrying amount of that asset. For example, the
following costs are not included in the carrying amount of an intangible
asset:
(a) Costs incurred while an asset capable of operating in the
manner intended by management has yet to be brought into
use; and
(b) Initial operating deficits, such as those incurred while demand
for the asset’s output builds up.
38. Some operations occur in connection with the development of an
intangible asset, but are not necessary to bring the asset to the
condition necessary for it to be capable of operating in the manner
intended by management. These incidental operations may occur
before or during the development activities. Because incidental
operations are not necessary to bring an asset to the condition
necessary for it to be capable of operating in the manner intended by
management, the revenue and related expenses of incidental
operations are recognised immediately in the income and expenditure
statement, and included in their respective classifications of revenue
and expense.
39. If payment for an intangible asset is deferred beyond normal credit
terms, its cost is the cash price equivalent. The difference between
this amount and the total payments is recognised as interest expense
over the period of credit unless it is capitalised in accordance with the
capitalisation treatment permitted in ASLB 5, ‘Borrowing Costs’.

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Subsequent Expenditure on an Acquired In-process
Research and Development Project
40. Research or development expenditure that:
(a) Relates to an in-process research or development project
acquired separately and recognised as an intangible asset;
and
(b) Is incurred after the acquisition of that project;
should be accounted for in accordance with paragraphs 52–60.
41. Applying the requirements in paragraphs 52–60 means that
subsequent expenditure on an in-process research or development
project acquired separately and recognised as an intangible asset is:
(a) Recognised as an expense when incurred if it is research
expenditure;
(b) Recognised as an expense when incurred if it is development
expenditure that does not satisfy the criteria for recognition as
an intangible asset in paragraph 55; and
(c) Added to the carrying amount of the acquired in-process
research or development project if it is development expenditure
that satisfies the recognition criteria in paragraph 55.

Intangible Assets Acquired through Non-Exchange
Transactions
42. In some cases, an intangible asset may be acquired through a non-
exchange transaction. This may happen when a local body transfers to
another local body in a non-exchange transaction, intangible assets
such as, any licence or rights to access or a private citizen, for
example a Nobel Prize winner, may bequeath his or her personal
papers, including the copyright to his or her publications to the
archives of a local body in a non-exchange transaction.
43. Under these circumstances the cost of the item is the nominal value.

Exchanges of Assets
44. One or more intangible assets may be acquired in exchange for a non-
monetary asset or assets, or a combination of monetary and non-

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monetary assets. The following discussion refers simply to an
exchange of one non-monetary asset for another, but it also applies to
all exchanges described in the preceding sentence. The cost of such
an intangible asset is usually determined by reference to the fair
market value of the consideration given. It may be appropriate to
consider also the fair market value of the asset acquired if this is more
clearly evident. An alternative accounting treatment that is sometimes
used for an exchange of assets, particularly when the assets
exchanged are similar, is to record the asset acquired at the net book
value of the asset given up; in each case an adjustment is made for
any balancing receipt or payment of cash or other consideration.
45. [Refer to Appendix 1]

Internally Generated Goodwill
46. Internally generated goodwill should not be recognised as an
asset.
47. In some cases, expenditure is incurred to generate future economic
benefits or service potential, but it does not result in the creation of an
intangible asset that meets the recognition criteria in this Standard.
Such expenditure is often described as contributing to internally
generated goodwill. Internally generated goodwill is not recognised as
an asset because it is not an identifiable resource (i.e., it is not
separable nor does it arise from binding arrangements (including rights
from contracts or other legal rights) controlled by the entity that can be
measured reliably at cost.
48. Differences between the market value of an entity and the carrying
amount of its identifiable net assets at any time may capture a range
of factors that affect the value of the entity. However, such differences
do not represent the cost of intangible assets controlled by the entity.

Internally Generated Intangible Assets
49. It is sometimes difficult to assess whether an internally generated
intangible asset qualifies for recognition because of problems in:
(a) Identifying whether and when there is an identifiable asset that
will generate expected future economic benefits or service
potential; and

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(b) Determining the cost of the asset reliably. In some cases, the
cost of generating an intangible asset internally cannot be
distinguished from the cost of maintaining or enhancing the
entity’s internally generated goodwill or of running day-to-day
operations.
Therefore, in addition to complying with the general requirements for
the recognition and initial measurement of an intangible asset, an
entity applies the requirements and guidance in paragraphs 50–65 to
all internally generated intangible assets.
50. To assess whether an internally generated intangible asset meets the
criteria for recognition, an entity classifies the generation of the asset
into:
(a) A research phase; and
(b) A development phase.
Although the terms “research” and “development” are defined, the
terms “research phase” and “development phase” have a broader
meaning for the purpose of this Standard.
51. If an entity cannot distinguish the research phase from the
development phase of an internal project to create an intangible asset,
the entity treats the expenditure on that project as if it were incurred in
the research phase only.

Research Phase
52. No intangible asset arising from research (or from the research
phase of an internal project) should be recognised. Expenditure
on research (or on the research phase of an internal project)
should be recognised as an expense when it is incurred.
53. In the research phase of an internal project, an entity cannot
demonstrate that an intangible asset exists that will generate probable
future economic benefits or service potential. Therefore, this
expenditure is recognised as an expense when it is incurred.
54. Examples of research activities are:
(a) Activities aimed at obtaining new knowledge;

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(b) The search for, evaluation and final selection of, applications of
research findings or other knowledge;
(c) The search for alternatives for materials, devices, products,
processes, systems, or services; and
(d) The formulation, design, evaluation, and final selection of
possible alternatives for new or improved materials, devices,
products, processes, systems, or services.

Development Phase
55. An intangible asset arising from development (or from the
development phase of an internal project) should be recognised
if, and only if, an entity can demonstrate all of the following:
(a) The technical feasibility of completing the intangible asset
so that it will be available for use or sale;
(b) Its intention to complete the intangible asset and use or sell
it;
(c) Its ability to use or sell the intangible asset;
(d) How the intangible asset will generate probable future
economic benefits or service potential. Among other things,
the entity can demonstrate the existence of a market for the
output of the intangible asset or the intangible asset itself
or, if it is to be used internally, the usefulness of the
intangible asset;
(e) The availability of adequate technical, financial and other
resources to complete the development and to use or sell
the intangible asset; and
(f) Its ability to measure reliably the expenditure attributable to
the intangible asset during its development.
56. In the development phase of an internal project, an entity can, in some
instances, identify an intangible asset and demonstrate that the asset
will generate probable future economic benefits or service potential.
This is because the development phase of a project is further
advanced than the research phase.

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57. Examples of development activities are:
(a) The design, construction, and testing of pre-production or pre-
use prototypes and models;
(b) The design of tools, jigs, moulds, and dies involving new
technology;
(c) The design, construction, and operation of a pilot plant or
operation that is not of a scale economically feasible for
commercial production or use in providing services;
(d) The design, construction, and testing of a chosen alternative for
new or improved materials, devices, products, processes,
systems, or services; and
(e) Website costs and software development costs.
58. To demonstrate how an intangible asset will generate probable future
economic benefits or service potential, an entity assesses the future
economic benefits or service potential to be received from the asset
using the principles in either ASLB on ‘Impairment of Non-Cash-
Generating Assets’ or ASLB on ‘Impairment of Cash-Generating
Assets’,9 as appropriate. If the asset will generate economic benefits
or service potential only in combination with other assets, the entity
applies the concept of cash-generating units in ASLB on ‘Impairment
of Cash-Generating Assets’.
59. Availability of resources to complete, use, and obtain the benefits from
an intangible asset can be demonstrated by, for example, an operating
plan showing the technical, financial, and other resources needed and
the entity’s ability to secure those resources. In some cases, an entity
demonstrates the availability of external finance by obtaining a
lender’s or funder’s indication of its willingness to fund the plan.
60. An entity’s costing systems can often measure reliably the cost of
generating an intangible asset internally, such as salary and other
expenditure incurred in securing logos, copyrights or licences, or
developing computer software.

9 The Accounting Standards for Local Bodies are under preparation.

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Compendium of ASLBs

61. Internally generated brands, mastheads, publishing titles, and
items similar in substance should not be recognised as intangible
assets.
62. Expenditure on internally generated brands, mastheads, publishing
titles, and items similar in substance cannot be distinguished from the
cost of developing the entity’s operations as a whole. Therefore, such
items are not recognised as intangible assets.

Cost of an Internally Generated Intangible Asset
63. The cost of an internally generated intangible asset for the purpose of
paragraph 31 is the sum of expenditure incurred from the date when
the intangible asset first meets the recognition criteria in paragraphs
28, 29, and 55. Paragraph 70 prohibits reinstatement of expenditure
previously recognised as an expense.
64. The cost of an internally generated intangible asset comprises all
directly attributable costs necessary to create, produce, and prepare
asset ready for intended use. Examples of directly attributable costs
are:
(a) Costs of materials and services used or consumed in generating
the intangible asset;
(b) Costs of employee benefits (as defined in ASLB on ‘Employee
Benefits’) arising from the generation of the intangible asset;
(c) Fees to register a legal right; and
(d) Amortisation of patents and licenses that are used to generate
the intangible asset.
ASLB on ‘Borrowing Costs’ specifies criteria for the recognition of
interest as an element of the cost of an asset that is a qualifying asset.
65. The following are not components of the cost of an internally
generated intangible asset:
(a) Selling, administrative and other general overhead expenditure
unless this expenditure can be directly attributed to preparing
the asset for use;
(b) Identified inefficiencies and initial operating deficits incurred
before the asset achieves planned performance; and

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 Intangible Assets

(c) Expenditure on training staff to operate the asset.

Recognition of an Expense
66. Expenditure on an intangible item should be recognised as an
expense when it is incurred unless it forms part of the cost of an
intangible asset that meets the recognition criteria (see
paragraphs 26–65).
67. In some cases, expenditure is incurred to provide future economic
benefits or service potential to an entity, but no intangible asset or
other asset is acquired or created that can be recognised. In the case
of the supply of goods, the entity recognises such expenditure as an
expense when it has a right to access those goods. In the case of the
supply of services, the entity recognises the expenditure as an
expense when it receives the services. For example, expenditure on
research is recognised as an expense when it is incurred (see
paragraph 52). Other examples of expenditure that is recognised as an
expense when it is incurred include:
(a) Expenditure on start-up activities (i.e., start-up costs), unless
this expenditure is included in the cost of an item of property,
plant, and equipment in accordance with ASLB 17. Start-up
costs may consist of establishment costs such as legal and
secretarial costs incurred in establishing a legal entity,
expenditure to open a new facility or operation (i.e., pre-opening
costs), or expenditures for starting new operations or launching
new products or processes (i.e., pre-operating costs);
(b) Expenditure on training activities;
(c) Expenditure on advertising and promotional activities (including
mail order catalogues and information pamphlets); and
(d) Expenditure on relocating or reorganising part or all of an entity.
68. An entity has a right to access goods when it owns them. Similarly, it
has a right to access goods when they have been constructed by a
supplier in accordance with the terms of a supply contract and the
entity could demand delivery of them in return for payment. Services
are received when they are performed by a supplier in accordance
with a contract to deliver them to the entity and not when the entity

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Compendium of ASLBs

uses them to deliver another service, for example, to deliver
information about a service to users of that service.
69. Paragraph 66 does not preclude an entity from recognising a
prepayment as an asset when payment for goods has been made in
advance of the entity obtaining a right to access those goods.
Similarly, paragraph 66 does not preclude an entity from recognising a
prepayment as an asset when payment for services has been made in
advance of the entity receiving those services.

Past Expenses not to be Recognised as an Asset
70. Expenditure on an intangible item that was initially recognised as
an expense under this Standard should not be recognised as part
of the cost of an intangible asset at a later date.

Subsequent Measurement
71-72. [Refer to Appendix 1]
73. After initial recognition, an intangible asset should be carried at its cost
less any accumulated amortisation and any accumulated impairment
losses.
74-86. [Refer to Appendix 1]

Useful Life
87-88. [Refer to Appendix 1]
89. There is a rebuttable presumption that the useful life of an intangible
asset will not exceed 10 years from the date when the asset is
available for use. Many factors are considered in determining the
useful life of an intangible asset, including:
(a) The expected usage of the asset by the entity and whether the
asset could be managed efficiently by another management
team;
(b) Typical product life cycles for the asset and public information
on estimates of useful lives of similar assets that are used in a
similar way;
(c) Technical, technological, commercial, or other types of
obsolescence;

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 Intangible Assets

(d) The stability of the industry in which the asset operates and
changes in the market demand for the products or services
output from the asset;
(e) Expected actions by competitors or potential competitors;
(f) The level of maintenance expenditure required to obtain the
expected future economic benefits or service potential from the
asset and the entity’s ability and intention to reach such a level;
(g) The period of control over the asset and legal or similar limits on
the use of the asset, such as the expiry dates of related leases;
and
(h) Whether the useful life of the asset is dependent on the useful
life of other assets of the entity.
90. [Refer to Appendix 1]
91. Given the history of rapid changes in technology, computer software
and many other intangible assets are susceptible to technological
obsolescence. Therefore, it is likely that their useful life is short.
91A. Estimates of the useful life of an intangible asset generally become
less reliable as the length of the useful life increases. This Standard
adopts a presumption that the useful life of intangible assets is unlikely
to exceed ten years. However, in some cases, there may be
persuasive evidence that the useful life of an intangible asset will be a
specific period longer than ten years. In these cases, the presumption
that the useful life generally does not exceed ten years is rebutted and
the entity:
(a) Amortises the intangible asset over the best estimate of its
useful life;
(b) Estimates the recoverable amount of the intangible asset at
annually in order to identify any impairment loss;
(c ) Disclose the reasons why the presumption is rebutted and the
factor(s) that played a significant role in determining the useful
life of the asset.

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Compendium of ASLBs

Example: An entity has incurred expense for acquiring a right to use a
technology to generate energy from bio-degrading garbage waste for a
period of 25 years. It is expected that this right will be used for a
period of 25 years.
The entity should amortise the right over the period of 25 years, unless
there is evidence that its useful life is shorter.
92. The useful life of an intangible asset may be very long but it is always
finite. Uncertainty justifies estimating the useful life of an intangible
asset on a prudent basis, but it does not justify choosing a life that is
unrealistically short.
93. The useful life of an intangible asset that arises from binding
arrangements (including rights from contracts or other legal
rights) should not exceed the period of the binding arrangement
(including rights from contracts or ther legal rights), but may be
shorter depending on the period over which the entity expects to
use the asset. If the binding arrangements (including rights from
contracts or other legal rights) are conveyed for a limited term
that can be renewed, the useful life of the intangible asset should
include the renewal period(s) only if there is evidence to support
renewal by the entity without significant cost.
94. There may be economic, political, social, and legal factors influencing
the useful life of an intangible asset. Economic, political, or social
factors determine the period over which future economic benefits or
service potential will be received by the entity. Legal factors may
restrict the period over which the entity controls access to such
economic benefits or service potential. The useful life is the shorter of
the periods determined by these factors.
95. Existence of the following factors, among others, indicates that an
entity would be able to renew the binding arrangements (including
rights from contracts or other legal rights) without significant cost:
(a) There is evidence, possibly based on experience, that the
binding arrangements (including rights from contracts or other
legal rights) will be renewed. If renewal is contingent upon the
consent of a third party, this includes evidence that the third
party will give its consent;

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 Intangible Assets

(b) There is evidence that any conditions necessary to obtain
renewal will be satisfied; and
(c) The cost to the entity of renewal is not significant when
compared with the future economic benefits or service potential
expected to flow to the entity from renewal.
If the cost of renewal is significant when compared with the future
economic benefits or service potential expected to flow to the entity
from renewal, the “renewal cost” represents, in substance, the cost to
acquire a new intangible asset at the renewal date.

Amortisation
Amortisation Period and Amortisation Method
96. The depreciable amount of an intangible asset should be
allocated on a systematic basis over the best estimate of its
useful life. Amortisation should begin when the asset is available
for use, i.e., when it is in the location and condition necessary for
it to be capable of operating in the manner intended by
management. The amortisation method used should reflect the
pattern in which the asset’s future economic benefits or service
potential are expected to be consumed by the entity. If that
pattern cannot be determined reliably, the straight-line method
should be used. The amortisation charge for each period should
be recognised the income and expenditure statement unless this
or another Standard permits or requires it to be included in the
carrying amount of another asset.
97. A variety of amortisation methods can be used to allocate the
depreciable amount of an asset on a systematic basis over its useful
life. These methods include the straight-line method, the diminishing
balance method, and the unit of production method. The method used
is selected on the basis of the expected pattern of consumption of the
expected future economic benefits or service potential embodied in the
asset and is applied consistently from period to period, unless there is
a change in the expected pattern of consumption of those future
economic benefits or service potential.
98. Amortisation is usually recognised in the income and expenditure
statement. However, sometimes the future economic benefits or

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Compendium of ASLBs

service potential embodied in an asset are absorbed in producing
other assets. In this case, the amortisation charge constitutes part of
the cost of the other asset and is included in its carrying amount. For
example, the amortisation of intangible assets used in a production
process is included in the carrying amount of inventories (see ASLB
12).

Residual Value
99. The residual value of an intangible asset should be assumed to
be zero unless:
(a) There is a commitment by a third party to acquire the asset
at the end of its useful life; or
(b) There is an active market for the asset, and:
(i) Residual value can be determined by reference to that
market; and
(ii) It is probable that such a market will exist at the end
of the asset’s useful life.
100. The depreciable amount of an asset is determined after deducting its
residual value. A residual value other than zero implies that an entity
expects to dispose of the intangible asset before the end of its
economic life.
101. An estimate of an asset’s residual value is based on the amount
recoverable from disposal using prices prevailing at the date of the
estimate for the sale of a similar asset that has reached the end of its
useful life and has operated under conditions similar to those in which
the asset will be used. The residual value is reviewed at least at each
reporting date. A change in the asset’s residual value is accounted for
as a change in an accounting estimate in accordance with ASLB 3,
‘Accounting Policies, Changes in Accounting Estimates and Errors’.
102. The residual value of an intangible asset may increase to an amount
equal to or greater than the asset’s carrying amount. If it does, the
asset’s amortisation charge is zero unless and until its residual value
subsequently decreases to an amount below the asset’s carrying
amount.

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 Intangible Assets

Review of Amortisation Period and Amortisation Method
103. The amortisation period and the amortisation method for an
intangible asset should be reviewed at least at each reporting
date. If the expected useful life of the asset is different from
previous estimates, the amortisation period should be changed
accordingly. If there has been a change in the expected pattern of
consumption of the future economic benefits or service potential
embodied in the asset, the amortisation method should be
changed to reflect the changed pattern. Such changes should be
accounted for as changes in accounting estimates in accordance
with ASLB 3, ‘Accounting Policies, Changes in Accounting
Estimates and Errors’.
104. During the life of an intangible asset, it may become apparent that the
estimate of its useful life is inappropriate. For example, the recognition
of an impairment loss may indicate that the amortisation period needs
to be changed.
105. Over time, the pattern of future economic benefits or service potential
expected to flow to an entity from an intangible asset may change. For
example, it may become apparent that a diminishing balance method
of amortisation is appropriate rather than a straight-line method.
Another example is if use of the rights represented by a licence is
deferred pending action on other components of the entity’s strategic
plan. In this case, economic benefits or service potential that flow from
the asset may not be received until later periods.
106-109. [Refer to Appendix1]

Recoverability of the Carrying Amount—
Impairment Losses
110. To determine whether an intangible asset measured under the cost
model is impaired, an entity applies either ASLB on, ‘Impairment of
Non-Cash-Generating Assets’ or ASLB on, ‘Impairment of Cash-
Generating Assets’, as appropriate. Those Standards explain when
and how an entity reviews the carrying amount of its assets, how it
determines the recoverable service amount or recoverable amount of
an asset, as appropriate, and when it recognises or reverses an
impairment loss.

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Compendium of ASLBs

Retirements and Disposals
111. An Intangible asset should be derecognised:
(a) On disposal (including disposal through a non-exchange
transaction); or
(b) When no future economic benefits or service potential are
expected from its use or disposal.
112. Gains or losses arising from the retirement or disposal of an intangible
asset should be determined as the difference between the net disposal
proceeds, if any, and the carrying amount of the asset and should be
recognised as income or expense in the income and expenditure
statement.
113. The disposal of an intangible asset may occur in a variety of ways
(e.g., by sale, by entering into a finance lease, or through a non-
exchange transaction). In determining the date of disposal of such an
asset, an entity applies the criteria in ASLB 9, ‘Revenue from
Exchange Transactions’ for recognising revenue from the sale of
goods. ASLB on ‘Leases’ applies to disposal by a sale and leaseback.
114. An intangible asset that is retired from active use and held for disposal
is carried at its carrying amount at the date when the asset is retired
from active use. At least at each reporting date, an enterprise tests the
asset for impairment, an entity applies either ASLB on ‘Impairment of
Non-Cash-Generating Assets’ or ASLB on ‘Impairment of Cash-
Generating Assets’, as appropriate, and recognises any impairment
loss accordingly.
115. The consideration receivable on disposal of an intangible asset should
be recognised at the contracted amount. However, if payment for the
intangible asset is deferred and the same involves a financing
arrangement, the consideration received is recognised initially at the
cash price equivalent. The difference between the nominal amount of
the consideration and the cash price equivalent is recognised as
interest revenue in accordance with ASLB 9 reflecting the effective
yield on the receivable.
116. [Refer to Appendix 1]

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 Intangible Assets

Disclosure
General
117. An entity should disclose the following for each class of
intangible assets, distinguishing between internally generated
intangible assets and other intangible assets:
(a) Useful lives and amortisation rate used;
(b) The amortisation methods used;
(c) The gross carrying amount and any accumulated
amortisation (aggregated with accumulated impairment
losses) at the beginning and end of the period;
(d) The line item(s) of the income and expenditure statement in
which any amortisation of intangible assets is included;
(e) A reconciliation of the carrying amount at the beginning
and end of the period showing:
(i) Additions, indicating separately those from internal
development and those acquired separately;
(ii) Retirements and disposals;
(iii) Impairment losses recognised in the income and
expenditure statement during the period in
accordance with the relevant ASLBs (if any);
(iv) Impairment losses reversed in the income and
expenditure statement during the period in
accordance with the relevant ASLBs (if any);
(v) Any amortisation recognised during the period;and
(vi) Other changes in the carrying amount during the
period.
118. A class of intangible assets is a grouping of assets of a similar nature
and use in an entity’s operations. Examples of separate classes may
include:
(a) Brand names;
(b) Mastheads and publishing titles;

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Compendium of ASLBs

(c) Computer software;
(d) Licences;
(e) Copyrights, patents, and other industrial property rights, service,
and operating rights;
(f) Recipes, formulae, models, designs, and prototypes; and
(g) Intangible assets under development.
The classes mentioned above are disaggregated (aggregated) into
smaller (larger) classes if this results in more relevant information for
the users of the financial statements.
119. An entity discloses information on impaired intangible assets in
accordance with the relevant ASLBs in addition to the information
required by paragraph 117(e)(iii)–(iv).
120. ASLB 3, ‘Accounting Policies, Changes in Accounting Estimates and
Errors’ requires an entity to disclose the nature and amount of a
change in an accounting estimate that has a material effect in the
current period or is expected to have a material effect in subsequent
periods. Such disclosure may arise from changes in:
(a) The assessment of an intangible asset’s useful life;
(b) The amortisation method; or
(c) Residual values.
121-124. [Refer to Appendix 1]

Research and Development Expenditure
125. An entity should disclose the aggregate amount of research and
development expenditure recognised as an expense during the
period.
126. Research and development expenditure comprises all expenditure that
is directly attributable to research or development activities (see
paragraphs 64 and 65 for guidance on the type of expenditure to be
included for the purpose of the disclosure requirement in paragraph
125).

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 Intangible Assets

Other Information
127. An entity may disclose the additional information regarding description
of any fully amortised intangible asset that is still in use.
128. [Refer to Appendix 1]
129. [Refer to Appendix 1]
130. [Refer to Appendix 1]

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Compendium of ASLBs

Appendix A

This appendix which is illustrative and does not form part of the Accounting
Standard for Local Bodies provides illustrative application of the principles
laid down in the Standard to internal use software and web-site costs. Its
purpose is to illustrate the application of the Accounting Standard for Local
Bodies to assist in clarifying its meaning.

I. Illustrative Application of the Accounting
Standard for Local Bodies to Internal Use
Computer Software
Computer software for internal use can be internally generated or acquired.

Internally Generated Computer Software
1. Internally generated computer software for internal use is developed or
modified internally by the entity solely to meet the needs of the entity
and at no stage it is planned to sell it.
2. The stages of development of internally generated software may be
categorised into the following two phases:
 Preliminary project stage, i.e., the research phase
 Development stage

Preliminary project stage
3. At the preliminary project stage the internally generated software
should not be recognised as an asset. Expenditure incurred in the
preliminary project stage should be recognised as an expense when it
is incurred. The reason for such a treatment is that at this stage of the
software project an entity can not demonstrate that an asset exists
from which future economic benefits or service potential are probable.
4. When a computer software project is in the preliminary project stage,
entities are likely to:
a) Make strategic decisions to allocate resources between
alternative projects at a given point in time. For example, should
programmers develop a new payroll system or direct their
efforts toward correcting existing problems in an operating
payroll system.

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 Intangible Assets

(b) Determine the performance requirements (that is, what it is that
they need the software to do) and systems requirements for the
computer software project it has proposed to undertake.
(c) Explore alternative means of achieving specified performance
requirements. For example, should an entity make or buy the
software. Should the software run on a mainframe or a client
server system.
(d) Determine that the technology needed to achieve performance
requirements exists.
(e) Select a consultant to assist in the development and/or
installation of the software.

Development Stage
5. An internally generated software arising at the development stage
should be recognised as an asset if, and only if, an entity can
demonstrate all of the following:
(a) the technical feasibility of completing the internally generated
software so that it will be available for internal use;
(b) the intention of the entity to complete the internally generated
software and use it to perform the functions intended. For
example, the intention to complete the internally generated
software can be demonstrated if the entity commits to the
funding of the software project;
(c) the ability of the entity to use the software;
(d) how the software will generate probable future economic
benefits or service potential. Among other things, the entity
should demonstrate the usefulness of the software;
(e) the availability of adequate technical, financial and other
resources to complete the development and to use the software;
and
(f) the ability of the entity to reliably measure the expenditure
attributable to the software during its development.
6. Examples of development activities in respect of internally generated
software include:

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Compendium of ASLBs

(a) Design including detailed program design - which is the process
of detail design of computer software that takes product
function, feature, and technical requirements to their most
detailed, logical form and is ready for coding.
(b) Coding which includes generating detailed instructions in a
computer language to carry out the requirements described in
the detail program design. The coding of computer software
may begin prior to, concurrent with, or subsequent to the
completion of the detail program design.
At the end of these stages of the development activity, the entity
has a working model, which is an operative version of the
computer software capable of performing all the major planned
functions, and is ready for initial testing ("beta" versions).
(c) Testing which is the process of performing the steps necessary to
determine whether the coded computer software product meets
function, feature, and technical performance requirements set
forth in the product design.
At the end of the testing process, the entity has a master
version of the internal use software, which is a completed
version together with the related user documentation and the
training materials.

Cost of internally generated software
7. The cost of an internally generated software is the sum of the
expenditure incurred from the time when the software first met the
recognition criteria for an intangible asset as stated in paragraphs 28
and 29 of this Standard and paragraph 5 above. An expenditure which
did not meet the recognition criteria as aforesaid and expensed in an
earlier financial statements should not be reinstated if the recognition
criteria are met later.
8. The cost of an internally generated software comprises all expenditure
that can be directly attributed or allocated on a reasonable and
consistent basis to create the software for its intended use. The cost
include:
(a) expenditure on materials and services used or consumed in
developing the software;

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(b) the salaries, wages and other employment related costs of
personnel directly engaged in developing the software;
(c) any expenditure that is directly attributable to generating
software; and
(d) overheads that are necessary to generate the software and that
can be allocated on a reasonable and consistent basis to the
software (For example, an allocation of the depreciation of fixed
assets, insurance premium and rent). Allocation of overheads
are made on basis similar to those used in allocating the
overhead to inventories.
9. The following are not components of the cost of an internally
generated software:
(a) selling, administration and other general overhead expenditure
unless this expenditure can be directly attributable to the
development of the software;
(b) identified inefficiencies and initial operating deficits incurred
before software achieves the planned performance; and
(c) expenditure on training the staff to use the internally generated
software.

Software Acquired for Internal Use
10. The cost of a software acquired for internal use should be recognised
as an asset if it meets the recognition criteria prescribed in paragraphs
28 and 29 of this Standard.
11. The cost of a software purchased for internal use comprises its
purchase price, including any import duties and other taxes (other than
those subsequently recoverable by the entity from the taxing
authorities) and any directly attributable expenditure on making the
software ready for its use. Any trade discounts and rebates are
deducted in arriving at the cost. In the determination of cost, matters
stated in paragraphs 32-39 of the Standard need to be considered, as
appropriate.

Subsequent expenditure
12. Entities may incur considerable cost in modifying existing software
systems. Subsequent expenditure on software after its purchase or its

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Compendium of ASLBs

completion should be recognised as an expense when it is incurred
unless:
(a) it is probable that the expenditure will enable the software to
generate future economic benefits or service potential in excess
of its originally assessed standards of performance; and
(b) the expenditure can be measured and attributed to the software
reliably.
If these conditions are met, the subsequent expenditure should be
added to the carrying amount of the software. Costs incurred in order
to restore or maintain the future economic benefits or service potential
that an entity can expect from the originally assessed standard of
performance of existing software systems is recognised as an expense
when, and only when, the restoration or maintenance work is carried
out.

Amortisation period
13. The depreciable amount of a software should be allocated on a
systematic basis over the best estimate of its useful life. The
amortisation should commence when the software is available for use.
14. As per this Standard, there is a rebuttable presumption that the useful
life of an intangible asset will not exceed ten years from the date when
the asset is available for use. However, given the history of rapid
changes in technology, computer software is susceptible to
technological obsolescence. Therefore, it is likely that useful life of the
software will be much shorter, say 3 to 5 years.

Amortisation method
15. The amortisation method used should reflect the pattern in which the
software's economic benefits or service potential are consumed by the
entity. If that pattern can not be determined reliably, the straight-line
method should be used. The amortisation charge for each period
should be recognised in the income and expenditure statement
unless another ASLB permits or requires it to be included in the
carrying amount of another asset. For example, the amortisation of a
software used in a production process is included in the carrying
amount of inventories.

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II. Illustrative Application of the Accounting
Standard for Local Bodies to Web-Site Costs
1. An entity may incur internal expenditures when developing, enhancing
and maintaining its own web site. The web site may be used for
various purposes such as promoting and advertising products and
services, providing electronic services, and selling products and
services.
2. The stages of a web site's development can be described as follows:
(a) Planning - includes undertaking feasibility studies, defining
objectives and specifications, evaluating alternatives and
selecting preferences;
(b) Application and Infrastructure Development - includes obtaining
a domain name, purchasing and developing hardware and
operating software, installing developed applications and stress
testing; and
(c) Graphical Design and Content Development - includes
designing the appearance of web pages and creating,
purchasing, preparing and uploading information, either textual
or graphical in nature, on the web site prior to the web site
becoming available for use. This information may either be
stored in separate databases that are integrated into (or
accessed from) the web site or coded directly into the web
pages.
3. Once development of a web site has been completed and the web site
is available for use, the web site commences an operating stage.
During this stage, an entity maintains and enhances the applications,
infrastructure, graphical design and content of the web site.
4. The expenditures for purchasing, developing, maintaining and
enhancing hardware (e.g., web servers, staging servers, production
servers and Internet connections) related to a web site are not
accounted for under this Standard but are accounted for under ASLB
17, ‘Property, Plant & Equipment’. Additionally, when an entity incurs
an expenditure for having an Internet service provider host the entity's
web site on it's own servers connected to the Internet, the expenditure
is recognised as an expense.

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Compendium of ASLBs

5. An intangible asset is defined in paragraph 16 of this Standard as an
identifiable non-monetary asset, without physical substance.
Paragraph 17 of this Standard provides computer software as a
common example of an intangible asset. By analogy, a web site is
another example of an intangible asset. Accordingly, a web site
developed by an entity for its own use is an internally generated
intangible asset that is subject to the requirements of this Standard.
6. An entity should apply the requirements of this Standard to an internal
expenditure for developing, enhancing and maintaining its own web
site. Paragraph 66 of this Standard provides expenditure on an
intangible item to be recognised as an expense when incurred unless
it forms part of the cost of an intangible asset that meets the
recognition criteria in paragraphs 26-65 of the Standard. Paragraph 67
of the Standard requires expenditure on start-up activities to be
recognised as an expense when incurred. Developing a web site by an
entity for its own use is not a start-up activity to the extent that an
internally generated intangible asset is created. An entity applies the
requirements and guidance in paragraphs 49-65 of this Standard to an
expenditure incurred for developing its own web site in addition to the
general requirements for recognition and initial measurement of an
intangible asset. The cost of a web site, as described in paragraphs
63-65 of this Standard, comprises all expenditure that can be directly
attributed, or allocated on a reasonable and consistent basis, to
creating, producing and preparing the asset for its intended use.
The entity should evaluate the nature of each activity for which an
expenditure is incurred (e.g., training employees and maintaining the
web site) and the web site's stage of development or post-
development:
(a) Paragraph 52 of this Standard requires an expenditure on
research (or on the research phase of an internal project) to be
recognised as an expense when incurred. The examples
provided in paragraph 54 of this Standard are similar to the
activities undertaken in the Planning stage of a web site's
development. Consequently, expenditures incurred in the
Planning stage of a web site's development are recognised as
an expense when incurred.
(b) Paragraph 55 of this Standard requires an intangible asset

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arising from the development phase of an internal project to be
recognised if an entity can demonstrate fulfillment of the six
criteria specified. Application and Infrastructure Development
and Graphical Design and Content Development stages are
similar in nature to the development phase. Therefore,
expenditures incurred in these stages should be recognised as
an intangible asset if, and only if, in addition to complying with
the general requirements for recognition and initial
measurement of an intangible asset, an entity can demonstrate
those items described in paragraph 44 of this Standard. In
addition,
(i) an entity may be able to demonstrate how its web site will
generate probable future economic benefits or service
potential under paragraph 55(d) by using the principles in
ASLB on ‘Impairment of Non-Cash-Generating Assets’ or
ASLB on ‘Impairment of Cash-Generating Assets’.
(ii) an entity may incur an expenditure to enable use of
content, which had been purchased or created for another
purpose, on its web site (e.g., acquiring a license to
reproduce information) or may purchase or create content
specifically for use on its web site prior to the web site
becoming available for use. In such circumstances, an
entity should determine whether a separate asset, is
identifiable with respect to such content (e.g., copyrights
and licenses), and if a separate asset is not identifiable,
then the expenditure should be included in the cost of
developing the web site when the expenditure meets the
conditions in paragraph 55 of this Standard. As per
paragraph 28 of this Standard, an intangible asset is
recognised if, and only if, it meets specified criteria,
including the definition of an intangible asset. Paragraph
63 indicates that the cost of an internally generated
intangible asset is the sum of expenditure incurred from
the time when the intangible asset first meets the
specified recognition criteria. When an entity acquires or
creates content, it may be possible to identify an
intangible asset (e.g., a license or a copyright) separate

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from a web site. Consequently, an entity determines
whether an expenditure to enable use of content, which
had been created for another purpose, on its web site
becoming available for use results in a separate
identifiable asset or the expenditure is included in the
cost of developing the web site.
(c) the operating stage commences once the web site is available
for use, and therefore an expenditure to maintain or enhance
the web site after development has been completed should be
recognised as an expense when it is incurred unless it meets
the criteria in paragraph 28 of the Standard.
7. An intangible asset is measured subsequent to initial recognition by
applying the requirements in paragraph 73 of this Standard.
Additionally, since paragraph 92 of the Standard states that an
intangible asset always has a finite useful life, a web site that is
recognised as an asset is amortised over the best estimate of its
useful life. As indicated in paragraph 91 of the Standard, web sites are
susceptible to technological obsolescence, and given the history of
rapid changes in technology, their useful life will be short.
8. The following table illustrates examples of expenditures that occur
within each of the stages described in paragraphs 2 and 3 above and
application of paragraphs 5 and 6 above. It is not intended to be a
comprehensive checklist of expenditures that might be incurred.
Nature of Expenditure Accounting treatment
Planning
• undertaking feasibility studies Expense when incurred
• defining hardware and software
Specifications
• evaluating alternative products
and suppliers
• selecting preferences
Application and Infrastructure
Development
• purchasing or developing Apply the requirements of ASLB 17,
‘Property, Plant & Equipment’
Hardware

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Nature of Expenditure Accounting treatment
• obtaining a domain name Expense when incurred, unless it
• developing operating software meets the recognition criteria
(e.g., operating system and under paragraphs 28 and 55
server software)
• developing code for the
Application
• installing developed applications
on the web server
• stress testing
Graphical Design and Content
Development
• designing the appearance (e.g., If a separate asset is not
layout and colour) of web pages identifiable, then expense when
• creating, purchasing, preparing incurred, unless it meets the
(e.g., creating links and recognition criteria under
identifying tags), and uploading paragraphs 28 and 55
information, either textual or
graphical in nature, on the web
site prior to the web site becoming
available for use. Examples of
content include information about
an entity, products or
services offered for sale, and topics
that subscribers access
Operating
• updating graphics and revising Expense when incurred, unless in
Content rare circumstances it meets the
• adding new functions, features criteria in paragraph 28, in which
and content case the expenditure is included
• registering the web site with in the cost of the web site
search engines
• backing up data
• reviewing security access
• analysing usage of the web site

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Nature of Expenditure Accounting treatment
Other
• selling, administrative and other Expense when incurred
general overhead expenditure
unless it can be directly attributed
to preparing the web site for use
• clearly identified inefficiencies
and initial operating losses
incurred before the web site
achieves planned performance
(e.g., false start testing)
• training employees to operate the
web site

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Appendix B

Implementation Guidance – Illustrative accounting
treatment and disclosures
This guidance accompanies, but is not a part of, ASLB 31.
This guidance illustrates accounting treatment of various transactions
entered into by a local body.
Illustration: A Local Body ‘X’ decided to develop its own website. The
Expenditure incurred in conducting feasibility study for evaluating various
alternatives amounted to Rs. 1.5 Lakhs. After conducting feasibility study, the
local body ‘X’ decided to develop the website. For this purpose, the contract
of designing and developing the website was given to an outside agency at
Rs. 10 Lakhs. Cost incurred in purchasing hardware was Rs. 3 Lakhs. Costs
incurred in updating the contents hosted on the website after the website
became operational amounted to Rs. 1 Lakh. Costs incurred in training the
employees to operate the website amounted Rs. 50,000. It also acquired a
license to reproduce information on its website from another entity at Rs. 2
Lakhs for 2 years. How these transactions should be accounted for in the
books of the Local Body ‘X’.
(1) Costs incurred on feasibility studies Rs. 1.5 Lakhs should be charged
to Statement of Income & Expenditure as an expense as it relates to
planning stage of developing the website.
(2) Contract cost of designing and developing the website for Rs. 10 lakhs
should be recognised as an internally generated intangible asset
‘Website Costs’ if the criteria laid down in paragraph 55 of the
Standard regarding recognition of intangible asset arising from
Development Phase is satisfied.
(3) Hardware purchased should be capitalised as ‘Property, Plant and
Equipment’ if criteria given in of ASLB 17, ‘Property, Plant and
Equipment’ are met.
(4) Costs incurred in updating the contents should be charged to
Statement of Income & Expenditure as expense as these are incurred
for operating and maintenance of the website.

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(5) Training costs of Rs. 50,000 should be charged to Statement of
Income & Expenditure as expense because in accordance with
paragraph 65 of the Standard it is not a component of cost of an
internally generated intangible asset.
(6) License acquired to reproduce information for Rs. 2 lakhs should be
capitalised as a separate intangible asset as ‘Licenses’.

Illustrative disclosures regarding Intangible assets as
per Paragraph 117 of the Standard
(a) Illustrative Accounting Policy regarding amortisation
method: The Intangible assets are amortised over their
estimated useful lives not exceeding 10 years on a straight line
basis, commencing from the date the asset is available to the
entity for its use.
The management estimates the useful lives for the intangible assets
as follows:
Category Useful life
Website Costs 5 years
Patents and License 2 years

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(b) Illustrative Disclosures:
(Amount in Rs. Lakhs)

Asset Block Gross Carrying Amount Amortisation & Impairment Losses Net Carrying
Amount
Opening Additions Retirements/ Closing Accumulated Amortisation Impairment Impairment Accumulated At At the
balance during Disposals balance amortisation recognised Losses Losses amortisation the beginning
(a) the year (c) (a)+(b)- (aggregated during the recognised reversed (aggregated end of the
(b) (c)=(d) with year during the during the with of year
accumulated (f) year year Impairment/ the
Impairment/ (g ) (h) Loss) year
Loss) Closing (d)-
Opening balance (i)
balance
(e)+(f)+(g)-
(e) (h)=(i)
Internally
Generated
Intangible
Asset
Website - 10 - 10 - 2 - - 2 8 -
Costs

Intangible Assets
Other
Intangible
Asset
Licenses - 2 - 2 - 1 - - 1 1 -
 Appendix 1

Note: This Appendix is not a part of the Accounting Standard for Local
Bodies. The purpose of this Appendix is only to bring out the major
differences, if any, between Accounting Standard for Local Bodies (ASLB) 31
and the corresponding International Public Sector Accounting Standard
(IPSAS) 31, ‘Intangible Assets’.

Comparison with IPSAS 31, ‘Intangible Assets’
1. Paragraph 5 of IPSAS 31 which provides that Government Business
Enterprises should use IFRSs, has been deleted, as it is not relevant
for ASLB 31, which is applicable to Local Bodies of India. However,
paragraph number 5 is retained in ASLB 31, in order to maintain
consistency with IPSAS 31.
2. Exclusions in respect of Intangible assets acquired in a business
combination, goodwill acquired in a business combination, deferred
acquisition costs, deferred tax assets and intangible assets arising
from an insurer’s contractual rights under insurance contracts, and
non-current intangible assets classified as held for sale have been
removed from the ASLB 31, as these are not considered to be relevant
for Local Bodies in India.
3. Some definitions additional to that in IPSAS 31 have been provided in
the ASLB 31.
4. IPSAS 31 requires that intangible assets acquired through a non-
exchange transaction should be valued at fair value. In order to avoid
the complexity as the Local Bodies in India are at initial stage of
implementing the accrual accounting, ASLB 31 prescribes that Local
Bodies should measure such intangible assets at nominal value.
5. Revaluation model for recognising the intangible assets have been
removed from the ASLB 31. The ASLB 31 provides that after the intial
recognition, an intangible asset should be carried at its cost less any
accumulated amortisation and any accumulated impairment loss.
Consequential changes have also been made. Paragraph numbers
have been retained in order to maintain consistency with the
corresponding IPSAS.

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6. IPSAS 31 provides that the useful life of an intangible asset can be
finite or indefinite while the ASLB 31 provides that there is a rebuttable
presumption that the life of an intangible asset will not exceed ten
years from the date when the asset is available for use. Accordingly all
paragraphs pertaining to the indefinite life have been removed.
However, the paragraph numbers have been retained in order to
maintain consistency with the corresponding IPSAS.
7. Due to the above changes, certain disclosure requirements have also
been changed.
8. Paragraphs relating to effective date have been removed as the ASLB
31 would become mandatory for Local Bodies in a state from the date
specified by the State Government concerned. Paragraph numbers
have been retained in order to maintain consistency with IPSAS 31.
9. As compared to IPSAS 31, ASLB 31 provides an appendix on
“Illustrative Application of the Accounting Standard to Computer
Software for internal use and Website Costs” which states that useful
life of the software is likely to be shorter, say 3 to 5 years.

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Appendix 2

Note: This Appendix is not a part of the Accounting Standard for Local
Bodies. The purpose of this Appendix is only to bring out the major
differences, if any, between Accounting Standard for Local Bodies (ASLB) 31
and the corresponding existing Accounting Standard 26, ‘Intangible Assets’.

Comparison with corresponding existing Accounting
Standard 26, ‘Intangible Assets’
1. ASLB 31 includes a scope exclusion for the powers and rights
conferred by legislation, a constitution, or by equivalent means.
2. ASLB 31 does not require or prohibit the recognition of intangible
heritage assets. An entity that recognises intangible heritage assets is
required to comply with the disclosure requirements of this Standard
with respect to those intangible heritage assets that have been
recognised and may, but is not required to, comply with other
requirements of this Standard in respect of those intangible heritage
assets. Existing AS 26 does not provide the similar guidance.
3. Existing AS 26 contains requirements and guidance on goodwill and
intangible assets acquired in a business combination. ASLB 31 does
not include this guidance, as this is not considered to be relevant for
Local Bodies.
4. Existing AS 26 contains guidance on intangible assets acquired by
way of a government grant whereas ASLB 31 deals with this aspect by
way of intangible assets acquired through non-exchange transactions.
5. The examples included in ASLB 31 have been modified to better
address Local Bodies circumstances.
6. ASLB 31 uses different terminology, in certain instances, from existing
AS 26. The most significant examples are the use of the terms
“revenue”, “income and expenditure statement”, “future economic
benefits or service potential”, “accumulated surpluses or deficits,”
“operating/operation” and “rights from binding arrangements (including
rights from contracts or other legal rights)” in ASLB 31. The equivalent
terms in existing AS 26 are “income”, “profit & loss statement”, “future

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economic benefits”, “retained earnings”, “business” and “contractual or
other legal rights”.
7. Some additional guidance with respect to the cost of the Intangible
assets has been provided in the ASLB 31 as compared to AS 26.
8. Existing AS 26 gives reference to Accounting Standard on ‘Impairment
of Assets’. However, ASLB 31 makes reference to ASLBs on
‘Impairment of Cash Generating’ and ‘Non-cash Generating Assets’.
9. ASLB 31 permits the review of residual value at each reporting date as
compared to existing AS 26.

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