Learn On Your Own Accounting Treatement Of Intangible Asset:

Intangible assets are those assets that does not have a physical existence but has a useful life of more than one year. Examples of intangible assets are trademarks, patents, copyrights, goodwill, franchise agreements, etc

Recognition And Accounting Of Intangible Assets:

Intangible asset generates future economic benefits to the enterprise and the cost of the asset can be measured reliably. These recognition criteria applies to cost of acquiring and generating an intangible asset internally.


If an intangible asset is acquired separately, that should be accounted initially at cost, which includes all expenditures incurred for accquiring for e.g; purchase price, import duty, taxes, etc.

If an intangible asset is acquired in a business combination, the cost of that asset should be its fair value at the acquisition date which depends on market expectations.

When the intangible asset is acquired free of charge or for a normal consideration, by way of government grant, then it is recognized at a nominal value or at the acquisition cost.

The cost of an internally generated intangible asset includes all direct expenditures related to creating, producing and making the asset ready for its intended usage from the time it meets the first recognition criteria.

Amortization Period of Intangible Assets:

Amortization should start when the asset is available for use. The depreciable amount of an intangible asset should be allocated on the basis of useful life. It is normally presumed that the useful life of intangible assets does not exceed ten years. In some cases, it might be longer than ten years.

Intangible asset that has a definite productive life, should be amortized it over that productive life. The amount to be amortized is its recorded cost, less any residual value. However, intangible assets that are usually not considered to have any residual value, the full amount of the asset is generally amortized. Again, if there is scope of economic benefits to be derived from an intangible asset, then amortization method that approximates that pattern shold be followed. Otherwise, it is customary to amortize it using the straight-line method.

Retiring Of Intangible Assets:

An intangible asset should be derecognized or disposed off when no future economic benefits are expected to generate from its usage, any gain and loss (mathematically any differential amount between the net disposal proceeds and the carrying amount of the asset) arising should be recognized as income or expenses in Profit & Loss Account.

Impairment of Intangible Assets:

With the exception of goodwill and certain intangible assets for which an annual impairment test is required, entities are required to conduct impairment tests whenever circumstances indicate that an intangible asset’s carrying amount may not be recoverable. Examples of such instances are:

  1. Significant decrease in the market price of asset
  2. Adverse change in the asset’s manner of use
  3. Adverse change in legal factors or the business condition that could affect the asset’s value
  4. Costs incurred to acquire or construct the asset is too high
  5. Historical and projected operating or cash flow losses associated with the asset

It is a normal procedure that intangible asset are likely to be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

On impairment of intangible assets, the impairment loss needs to be recognized.

Journal Entry For Impairment Loss:

Impairment Loss A/c ------------- Dr.

To, Intangible Asset's A/c

(Being loss on impairment of asset taken into account)


The new amount of the intangible asset will be (carrying amount- the impairment loss).

It may also be necessary to adjust the remaining useful life of the asset, based on the information obtained during the testing process.

A previously-recognized impairment loss cannot be reversed.