Difference between Ind AS 38 on Intangible Assets and the existing AS 26 on Intangible Assets

(i) The existing standard (paragraph 5), does not apply to accounting issues of specialised nature also arise in respect of accounting for discount or premium relating to borrowings and ancillary costs incurred in connection with the arrangement of borrowings, share issue expenses and discount allowed on the issue of shares. Ind AS 38 does not include any such exclusion specifically as these are covered by other accounting standards.

(ii) The existing standard defines an intangible asset as 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 whereas in Ind AS 38, the requirement for the asset to be held for use in the production or supply of goods or services, for rental to others, or for administrative purposes has been removed from the definition of an intangible asset. (Paragraph 8 of Ind AS 38)

(iii) The existing standard does not define ‘identifiability’, but states that an intangible asset could be distinguished clearly from goodwill if the asset was separable, but that separability was not a necessary condition for identifiability. Ind AS 38 provides detailed guidance in respect of identifiability. (Paragraphs 11 and 12 of Ind AS 38)

(iv) As per Ind AS 38 , in the case of separately acquired intangibles, the criterion of probable inflow of expected future economic benefits is always considered satisfied, even if there is uncertainty about the timing or the amount of the inflow. However, there is no such provision in the existing standard. (Paragraph 25 of Ind AS 38).

(v) Under Ind AS 38, if payment for an intangible asset is deferred beyond normal credit terms, the difference between this amount and the total payments is recognised as interest expense over the period of credit unless it is capitalised as per Ind AS 23. However, there is no such provision in the existing standard. (Paragraph 32 of Ind AS 38)

(vi) Ind AS 38 deals in detail in respect of intangible assets acquired in a business combination. On the other hand, the existing standard refers only to intangible assets acquired in an amalgamation in the nature of purchase and does not refer to business combinations as a whole.

(vii) The existing standard is silent regarding the treatment of subsequent expenditure on an in-process research and development project acquired in a business combination whereas Ind AS 38 gives guidance for the treatment of such expenditure (Paragraphs 42 and 43 of Ind AS 38)

(viii) Ind AS 38 requires that if an intangible asset is acquired in exchange of a non-monetary asset, it should be recognised at the fair value of the asset given up unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. However, the existing standard requires the principles of existing AS 10 to be followed which requires that when an asset is acquired in exchange for another asset, its cost 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 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 also.

(ix) As per Ind AS 38, when intangible assets are acquired free of charge or for nominal consideration by way of government grant, an entity should, in accordance with Ind AS 20, record both the grant and the intangible asset at fair value. As per the existing standard, intangible assets acquired free of charge or for nominal consideration by way of government grant is recognised at nominal value or at acquisition cost, as appropriate plus any expenditure that is attributable to making the asset ready for intended use.(Paragraph 33 of existing AS 26) (Paragraph 44 of Ind AS 38)

(x) The existing standard is based on the assumption that the useful life of an intangible asset is always finite, and includes a rebuttable presumption that the useful life cannot exceed ten years from the date the asset is available for use. That rebuttable presumption is not there in Ind AS 38. Ind AS 38 recognizes that the useful life of an intangible asset can even be indefinite subject to fulfillment of certain conditions, in which case it should not be amortised but should be tested for impairment. (Paragraphs 88- 93, 129 of Ind AS 38)

(xi) In Ind AS 38, guidance is available on cessation of capitalisation of expenditure (Paragraph 30 of Ind AS 38), de-recognition of a part of an intangible asset (Paragraph 115 of Ind AS 38 ) and useful life of a reacquired right in a business combination (Paragraph 94 of Ind AS 38 ). There is no such guidance in the existing standard on these aspects.

(xii) Ind AS 38 permits an entity to choose either the cost model or the revaluation model as its accounting policy, whereas in the existing standard, revaluation model is not permitted.

(xiii) Ind AS 38 provides more guidance on recognition of intangible items recognised as expense. Ind AS 38 clarifies that in respect of prepaid expenses, recognition of an asset would be permitted only upto the point at which the entity has the right to access the goods or upto the receipt of services. Further, unlike the existing standard, mail order catalogues have been specifically identified as a form of advertising and promotional activities which are required to be expensed. (Paragraph 69 and 70 of Ind AS 38)

(xiv) Paragraph 94 of Ind AS 38 acknowledges that the useful life of an intangible asset arising from contractual or legal rights may be shorter than the legal life. The existing standard does not include such a provision.

(xv) As per the existing standard (Paragraph 73), there will rarely, if ever, be persuasive evidence to support an amortisation method for intangible assets that results in a lower amount of accumulated amortisation than under straight-line method. Ind AS 38 does not contain any such provision.

(xvi) Under Ind AS 38, the residual value is reviewed at least at each financial year-end. If it increases to an amount equal to or greater than the asset’s carrying amount, amortisation charge is zero unless the residual value subsequently decreases to an amount below the asset’s carrying amount. However, the existing standard specifically requires that the residual value is not subsequently increased for changes in prices or value.

(xvii) As per the existing standard, change in the method of amortisation is a change in accounting policy whereas as per Ind AS 38 (paragraph 104), this would be a change in accounting estimate.

(xviii) The existing standard also requires annual impairment testing of asset not yet available for use. There is no such requirement in Ind AS 38.

(xix) As per Ind AS 38, if payment of consideration on disposal of an intangible asset is deferred, the consideration recognised initially at the cost is cash price equivalent. There is no such provision in the existing standard. (Paragraph 116 of Ind AS 38).

(xx) Ind AS 38 also requires certain additional disclosures as compared to existing AS 26.

(xxi) Intangible assets retired from use and held for sale are covered by the existing standard. However, Ind AS 38 does not include such intangible assets since they would be covered by Ind AS 105. (ICAI)