Accounting Treatment of Redesign Costs Under Ind AS—Expense or Capitalise?

When businesses invest in redesigning an existing publication—such as a magazine, journal, or other periodical—they often incur a variety of costs aimed at enhancing its aesthetic appeal and reader engagement. These enhancements may involve updating the masthead, modernizing visual elements, restructuring the layout, refining typography, or integrating new graphic elements. The intention behind such improvements is typically to rejuvenate the brand’s image, attract new readership, retain existing audiences, or maintain a competitive edge in the marketplace.

The expenditure associated with these initiatives can include –

• Consultancy fees paid to design experts or branding agencies
• Purchase or subscription of specialised software for layout and graphics
• Internal human resource costs, including salaries of editorial, design, and IT teams engaged in the redesign process
• Prototyping and trial runs, including testing different versions for focus groups or sample audiences
• Project management and coordination overheads

A key accounting consideration is whether these redesign-related costs meet the definition of an intangible asset under the applicable financial reporting framework—primarily the Indian Accounting Standards (Ind AS), particularly Ind AS 38 – Intangible Assets.

1. Capitalisation vs. Expense – The Dilemma

Under Ind AS 38, an intangible asset is defined as an identifiable non-monetary asset without physical substance that is –

1. Identifiable (i.e., separable or arises from contractual/legal rights),
2. Controlled by the entity,
3. Expected to provide future economic benefits, and
4. Measured reliably.

While the redesign of an existing publication may enhance the brand and lead to potential economic benefits (such as increased sales or improved customer perception), the challenge lies in demonstrating the identifiability and separability of such enhancements. These updates often do not result in a new, standalone product but merely improve the appearance and appeal of an existing one.

Moreover, the benefits derived from such enhancements are generally –

• Difficult to isolate or attribute directly to the redesign activity, and
• Not controlled in a manner that restricts access to others in the same way as traditional intangible assets (like copyrights or patents) might be.

As a result, such costs typically fail to meet the recognition criteria for capitalisation and must instead be treated as expenses in the period in which they are incurred.

2. Application of Ind AS 38

Ind AS 38 also distinguishes between –

• Research costs, which are always expensed, and
• Development costs, which may be capitalised if certain stringent criteria are met, including technical feasibility, intention to complete, ability to use or sell, and ability to measure costs reliably.

Redesign efforts generally fall into the category of brand development and promotional enhancements rather than product development in the strict accounting sense. As such, they are considered akin to marketing or promotional expenditures, which Ind AS 38 mandates to be expensed as incurred—even if they are expected to generate long-term benefits.

3. Practical Implications

For entities engaged in publishing or media businesses, it is essential to –

• Maintain clear documentation of redesign activities,
• Segregate costs where possible (e.g., differentiating between routine operational expenses and project-specific investments), and
• Ensure consistent treatment across reporting periods to avoid manipulation of profit and loss.

In certain rare cases where redesign efforts are part of a broader development project resulting in a new digital platform or unique software-based content delivery mechanism, a portion of the costs may qualify for capitalization under Ind AS 38 or Ind AS 16 (Property, Plant and Equipment), depending on the nature of the output. However, such scenarios require careful evaluation and robust audit justification.