Expenditure on Training Activities Cannot be Considered as Intangible Asset Under Ind AS 38

Para 95 of Ind AS 115 states that an entity shall recognise an asset from the costs incurred to fulfil a contract only if those costs meet all of the following criteria:

(a) the costs relate directly to a contract or to an anticipated contract that the entity can specifically identify (for example, costs relating to services to be provided under renewal of an existing contract or costs of designing an asset to be transferred under a specific contract that has not yet been approved);

(b) the costs generate or enhance resources of the entity that will be used in satisfying (or in continuing to satisfy) performance obligations in the future; and

(c) the costs are expected to be recovered.

Based on the above provisions, a company has capitalised the expenditure incurred on training activities of its employees as an intangible asset because training expenditure relates directly to a contract that the company has specifically identified, expenditure incurred will be used in satisfying performance obligations in future and training expenditure are expected to be recovered over a period of time.

However, scope para of Ind AS 38 covers, among other things, expenditure on advertising, training, start-up, research and development activities. And para 69 provides examples of expenditure that is recognised as an expense when it is incurred and includes expenditure on training activities. This has confused the management of the company.

This story discusses where a company satisfies all asset recognition criteria given under para 95 of Ind AS 115 but still cannot recognise the expenditure on training activities as intangible asset under Ind AS 38.

Click Here To Read The Full Story