AS 26 (Intangible Assets) is the Indian Accounting Standard that prescribes when and how an enterprise recognises and measures intangible assets in its financial statements.

The Institute of Chartered Accountants of India (ICAI) issued AS 26 under the Companies (Accounting Standards) Rules, 2006. It became mandatory from 1 April 2003 for Level I enterprises and phased in for others by 1 April 2005. AS 26 replaced the earlier ICAI standard from February 2002.

For FY 2026-27, AS 26 remains highly relevant to Indian companies not covered by Ind AS. In the pharmaceutical sector, most drug development costs are expensed until late-stage trials because Para 44 criteria are rarely met before commercial launch.

AS 26 at a Glance

AS 26 (Intangible Assets) establishes the principle that an enterprise must recognise an intangible asset only if certain criteria are met and prescribes its subsequent measurement. The standard primarily applies to finance teams and statutory auditors of non-Ind AS Indian companies preparing financial statements as per notified Accounting Standards.

What is AS 26: Intangible Assets?

AS 26 defines how companies identify and account for intangible assets, assets without physical substance but with future economic benefits, such as patents, software, trademarks, licences, and development costs meeting specific criteria.

The ICAI introduced this standard to address inconsistencies in accounting for intangibles across Indian companies before convergence with international norms. Its requirements align closely with IAS 38 issued by the International Accounting Standards Board but differ from Ind AS 38 in several key areas.

Finance teams in manufacturing, IT services, pharmaceuticals, media companies and their statutory auditors most frequently use and interpret this standard.

Objective of AS 26

• Prescribe the accounting treatment for intangible assets that are not dealt with specifically in another Accounting Standard.
• Require an enterprise to recognise an intangible asset only if specified criteria are met.
• Specify how to measure the carrying amount of intangible assets and require certain disclosures.

The objective of AS 26 is to ensure that financial statements present a true and fair view by recognising only those intangibles that meet strict criteria. This aligns directly with the “true and fair” principle required under Section 129 of the Companies Act, 2013.

Who Must Apply AS 26?

Entities covered

*Level classification per ICAI/Companies (Accounting Standards) Rules.

Ind AS-applicable companies must apply Ind AS 38 instead. Listed entities and large unlisted companies falling under Ind AS roadmap do not use AS 26.

Scope exclusions

AS 26 does not apply to:

• Intangibles within another Accounting Standard’s scope (e.g., inventories under AS 2; deferred tax under AS 22).
• Financial assets within scope of AS 13.
• Mineral rights or expenditure on mineral exploration.
• Goodwill arising on amalgamation (see AS 14) or consolidation (see [AS 21]).
• Intangibles held for sale in ordinary business operations.

When the standard does not apply

Each exclusion above cross-refers as follows:

Intangibles covered by other standards, such as inventories or deferred tax, are governed by those respective standards. Financial instruments are subject to treatment under AS 13. Mineral rights fall outside accounting standards coverage entirely. Goodwill on amalgamation follows rules set out in AS 14 Amalgamations. Intangibles held for sale are accounted as inventory per [AS 2 Valuation of Inventories].

Key Definitions under AS 26

Recognition and Measurement under AS 26

When to recognise

An enterprise recognises an intangible asset only when both these conditions are satisfied:

It is probable that future economic benefits attributable to the asset will flow to the enterprise.

The cost of the asset can be measured reliably (Para 20).

For internally generated intangibles arising from development activities (software development costs or product R&D), all six criteria listed in Para 44 must be cumulatively met during the development phase:

Technical feasibility of completing the asset,

Intention to complete,

Ability to use/sell,

Demonstration that future economic benefits will flow,

Availability of adequate technical/financial resources,

Ability to reliably measure expenditure attributable during development.

Research phase expenditure is always expensed as incurred, never capitalised, per Para 41.

Internally generated brands, mastheads, publishing titles and customer lists cannot be recognised as intangibles even if they appear separable or valuable; Para 51 explicitly prohibits capitalisation here.

Initial measurement

All recognised intangible assets are initially measured at cost:

Cost includes purchase price plus import duties/non-refundable taxes plus directly attributable expenditure needed to prepare the asset for its intended use.

For internally generated intangibles:

Cost comprises all directly attributable expenses incurred after meeting Para 44 criteria up until readiness for use.

**Formula:**

Initial Cost = Purchase Price + Import Duties + Non-refundable Taxes + Directly Attributable Costs

If acquired through exchange against another asset:

Fair value of consideration given generally determines cost unless fair value cannot be reliably measured, in which case carrying amount of asset given up is used instead.

Subsequent measurement

After initial recognition:

Carrying amount = Cost less accumulated amortisation less any impairment losses recognised per AS 28 Impairment of Assets.

Only cost model is permitted under AS 26, there is no revaluation model unlike Ind AS 38/IAS 38.

Amortisation must begin when the asset is available for use regardless of whether it has started generating revenues.

Amortisation method should reflect pattern in which future economic benefits are consumed; if indeterminable then straight-line basis applies by default.

Residual value is assumed zero unless guaranteed by third party.

Useful life cannot exceed ten years except where persuasive evidence supports a longer period (Para 63).

Impairment testing applies where indicators exist, or annually if useful life exceeds ten years, as required by [AS 28].

Ten-Year Rebuttable Presumption and Mandatory Amortisation

Two features distinguish AS 26 from its Ind AS counterpart:

Mandatory amortisation: All intangible assets must be amortised over their useful lives, no indefinite-life concept exists.

Ten-year presumption: There is a rebuttable presumption that useful life does not exceed ten years from date available-for-use (Para 63). If rebutted based on persuasive evidence supporting longer utility:

• The entity must disclose reasons justifying this extension,
• An annual impairment review becomes mandatory per [AS 28].

Internally generated intangibles can only be capitalised if all six Para 44 criteria are met during development phase, not before.

Brands/customer lists/mastheads cannot be capitalised even if internally developed due to explicit prohibition in Para 51.

Software embedded within machinery forms part of tangible fixed assets per revised AS 10 Property Plant & Equipment, not an intangible under this standard.

Worked Examples on AS 26

Example 1: Patent acquired separately

Maharashtra Cement Ltd acquires a kiln-design patent for Rs 8 crore on April 1st, 2025.

Legal protection remaining: twelve years; useful life assessed as ten years consistent with presumption.

Residual value nil; straight-line amortisation adopted.

Computation Table

Journal Entries

Acquisition:

Dr Intangible Asset, Patent Rs 8 crore

Cr Bank Rs 8 crore

Annual amortisation:

Dr Amortisation Expense Rs 80 lakh

Cr Accumulated Amortisation Rs 80 lakh

Example 2: Internally generated software for internal use

Sundaram Engineering Pvt Ltd develops inventory management software internally during FY 2025-                     ²²²²²²²²²²²²²²²²²²²²²²

Total spend Rs 2 crore:

• Research phase Apr-Jun’25 Rs 0.40 crore
• Development phase Jul’25-Mar’ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘

All Para 44 criteria first met July 1st 2025;

Software ready March 31st 2026;

Useful life estimated six years from April 2026 onward.

Computation Table

\*Rounded off: Rs 0.267 crore = Rs 26.67 lakh per year starting FY’27

Journal Entries

FY’25-’

Dr Research Expense (P&L) Rs 0.40 crore

Dr Intangible Asset Under Development Rs 1.60 crore

Cr Bank/Salary Payable Rs 2 crore

On March31st’2026:

Dr Intangible Asset, Software Rs 1.60 crore

Cr Intangible Asset Under Development Rs 1.60 crore

Amortisation begins next fiscal year over six years at straight-line rate

Disclosure Requirements under AS 26

AS 26 requires detailed disclosures to ensure users of financial statements understand the basis of recognition, measurement, and amortisation of intangible assets. Schedule III to the Companies Act, 2013, reinforces these requirements by mandating transparent reporting for all significant intangibles. Proper disclosure supports audit clarity and comparability across reporting periods.

Auditors must verify that all required disclosures under AS 26 are complete and accurate as part of their opinion under SA 700.

Common Mistakes & Industry-Specific Considerations

Common errors auditors flag

• Failing to amortise intangibles by treating them as having indefinite life (no such concept under AS 26)
• Capitalising research costs (Para 41 prohibits)
• Capitalising development costs before all Para 44 criteria are met
• Recognising internally generated brands or customer lists (Para 51 prohibits)
• Treating computer software embedded in machinery as separate intangible (it is part of fixed asset under AS 10)
• Failing to disclose grounds for rebutting the 10-year useful life presumption when applied

Industry application notes

Pharmaceuticals: Drug development costs incurred before commercial launch are usually expensed. Under AS 26, reliable measurement and probable future benefits (Para 44) are rarely demonstrable until late-stage trials. Most Indian pharma companies expense all R&D until products reach market readiness.

IT services and software product companies: Internally developed software is capitalised only after technical feasibility is established. While Schedule II suggests a six-year useful life for software, management must assess actual usage patterns under AS 26. Useful lives typically range from three to five years in practice.

Media and broadcasting: Acquired content rights, such as films or music libraries, are treated as intangible assets. Given rapid content cycles, useful life seldom exceeds ten years. The standard's presumption generally applies without rebuttal in this sector.

AS 26 vs Ind AS 38 vs IFRS: Key Differences

The table below summarises how AS 26 compares with Ind AS 38 and IFRS (IAS 38) on key aspects:

India’s carve-outs from IFRS include the prohibition on indefinite-life intangibles and restriction to cost model only under AS 26. Ind AS 38 aligns more closely with IAS 38 but retains some Indian-specific guidance on transition and regulatory compliance.

Latest Amendments to AS 26 (FY 2026-27)

No amendments have been notified to AS 26 for FY 2026-27 as of 2026-05-02. The standard continues to apply in its existing form.

Related Standards You Should Know

• [Ind AS 38](/ind-as-38-intangible-assets/), Equivalent intangibles standard for Ind AS-applicable companies; differs in useful life concept and revaluation model.
• [AS 28](/as-28-impairment-of-assets/), Impairment testing of intangibles when indicators exist; mandatory annual review where useful life exceeds ten years.
• [AS 14](/as-14-amalgamations/), Goodwill arising on amalgamation is governed by AS 14, not AS 26.
• [AS 16](/as-16-borrowing-costs/), Borrowing costs on qualifying intangibles capitalised under AS 16.
• [AS 10](/as-10-property-plant-and-equipment/), Software embedded in hardware is part of PPE under revised AS 10, not within AS 26.

Need Help with AS 26 Compliance?

Patron Accounting LLP advises Indian companies on full-scope compliance with AS 26 Intangible Assets. Our team supports finance leaders through:

• Statutory Audit
• Financial Reporting & Schedule III compliance
• Disclosure Review
• Ind AS Advisory

Schedule a 30-minute consultation with our Ind AS team, Pune · Mumbai · Delhi · Gurugram.

About This Article

Reviewed by CA & CS Team · Patron Accounting LLP

Technical reviewer: CA Sundram Gupta, FCA

Last reviewed: 2026-05-02

Sources: ICAI Compendium of Accounting Standards · MCA Notification (Companies (Accounting Standards) Rules, 2006 (reaffirmed in Companies (Accounting Standards) Rules, 2021)) · IFRS Foundation