Shaking it up

New Delhi, Oct. 26: The Institute of Chartered Accountants of India (ICAI) is going to issue an announcement on the applicability of the accounting standard (AS) 26, pertaining to intangible assets, to include the expenditure on Voluntary Retirement Scheme(VRS).

This announcement also clarifies the impact of the transitional provisions contained in AS 26 in respect of such expenditure.

The announcement clarifies the treatment of the expenditure incurred on intangible items, which were treated as deferred revenue expenditure and ordinarily spread over a period of 3 to 5 years before AS 26 became mandatory (and also about those which do not meet the definition of an 'asset' as per AS 26). The examples of such items are expenditure incurred in respect of lump-sum payment towards a Voluntary Retirement Scheme (VRS), preliminary expenses and others.

The announcement clarifies that the expenditure incurred on such intangible items after the date AS 26 became mandatory, that is April 1, 2003, in certain categories of organisation (and those whose turnover exceeds Rs 50 crore) or April 1 next year for other organisations, would have to be expensed when incurred since these do not meet the definition of an “asset” as per AS 26.

In respect of the balances of the expenditure incurred on such intangible items before the date AS 26 became/becomes mandatory (appearing in the balance sheet as on 1-4-2003 or 1-4-2004), the paragraphs 99 and 100 of AS 26 will be applicable, an ICAI source said.

The announcement clarifies that it would not be proper to adjust the balances of such items against the revenue reserves on April 1, 2003 or April 1, 2004, as the case may be. Such items should continue to be expensed over a number of years, as originally contemplated.

The announcement also provides that in case an enterprise has already adjusted the above referred balances of the intangible items appearing in the balance sheet on April 1, 2003 against the opening balance of revenue reserves on April 1, 2003, it should rectify the same on the basis of the above requirements.

The objective of AS 26 is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another accounting standard.

It requires an enterprise to recognise an intangible asset if, and only if, certain criteria are met. It also specifies how to measure the carrying amount of intangible assets and requires certain disclosures about intangible assets.