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K.R. Srivats

New Delhi , Sept. 19

THE Institute of Chartered Accountants of India (ICAI) has clarified that listed enterprises should not adjust the balances of expenditure on intangible items — which have already been treated as deferred revenue expenditure — against the revenue reserves appearing in their balance sheets as on April 1, 2003.

The ICAI's clarification, which would be a setback of sorts for a section of India Inc, comes in response to queries raised by industry associations on the accounting treatment of unamortised expenditure on intangible items after April 1, 2003. The Institute's accounting standard on Intangible Assets (AS-26) has become mandatory for listed companies from accounting periods beginning April 1, 2003.

The position of ICAI implies that listed companies should not adjust their unamortised voluntary retirement scheme as on April 1, 2003 against their revenue reserves on that date. A number of listed companies, who had gone in for a VRS prior to April 1, 2003, are still carrying sizeable balances in their balance sheets as unamortised VRS payments (deferred revenue expenses).

Bulk payments made towards VRS would be considered as intangible items as they do not qualify to be an "asset" under AS-26. The Accounting Standard on Intangible Assets stipulates that expenditure incurred on intangible items should be expensed when incurred. This should necessarily be followed in respect of expenditure incurred by listed companies on intangible items after April 1, 2003.

"We have taken a position that it would not be proper for listed companies to adjust the balances of deferred revenue expenditure on intangible items against their revenue reserves as on April 1, 2003. Such items, which include VRS payments appearing in the balance sheet as on April 1, 2003, should be expensed over a number of years as originally contemplated," a senior ICAI official told Business Line.

The official said that the Institute would brief the National Advisory Committee on Accounting Standards (NACAS) on the stand taken by it on this issue.

ICAI has also taken a position that listed enterprises that have already adjusted the balances of the intangible items appearing in the balance sheet as on April 1, 2003 against the revenue reserves should rectify the same and expend it over a number of years.

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