Quick Facts
What AS-26 is
AS-26 (Accounting Standard 26) is the Indian accounting standard governing the treatment of intangible assets under traditional Indian GAAP (Generally Accepted Accounting Principles). The standard defines:
Recognition criteria for intangible assets.
Initial measurement of intangibles.
Subsequent measurement and amortisation.
Disclosure requirements.
Under Ind AS (Indian Accounting Standards) framework, AS-26 has been superseded by Ind AS 38, but the underlying principles are similar. Larger Indian companies are required to follow Ind AS; AS-26 still applies to smaller companies under old Indian GAAP.
For solar projects, AS-26 (or Ind AS 38) governs the accounting for intangible assets that are part of the solar business but distinct from tangible solar plant assets. Tangible assets (modules, structures, inverters) are governed by AS-10 (now Ind AS 16 for Property, Plant and Equipment).
What’s intangible in solar
Intangible assets in solar businesses include:
Software:
SCADA system software.
Monitoring portal subscriptions (annual or perpetual licenses).
Design software (PVsyst, AutoCAD licenses).
Custom software for plant management.
Computer system software.
Development rights:
Solar park development rights.
Specific PPA-related rights (some structures).
Land use rights (depending on lease structure).
Brand and trademarks:
Solar EPC company brand value.
Trademarks for proprietary solar products.
Patents and proprietary technology:
Solar cell manufacturing patents.
Process patents.
Innovation rights.
Goodwill:
Goodwill from acquisitions of solar businesses.
Excess of purchase price over fair value of acquired assets.
Customer relationships:
Long-term contracts with valuable customers.
Customer lists.
Most of these intangibles arise in the context of solar business operations rather than the physical plant itself.
Recognition criteria
For an intangible asset to be recognised under AS-26 or Ind AS 38:
Identifiability: The asset must be separately identifiable, capable of being separated from other assets, or arising from legal/contractual rights.
Control: The entity has control over the asset’s future economic benefits.
Future economic benefit: The asset will produce economic benefits in the future.
Reliable measurement: The cost of the asset can be measured reliably.
For software purchases: Generally meets all criteria (identifiable, controlled through license, expected to provide future benefits, cost known).
For development rights: May qualify if structured as a separate identifiable right.
For goodwill from acquisitions: Recognised at acquisition; subsequent treatment depends on framework (Ind AS does not amortise goodwill; periodically tests for impairment).
Solar tangible versus intangible
For solar projects, the tangible/intangible split is important:
Tangible assets (AS-10/Ind AS 16):
Solar modules.
Inverters.
Mounting structures.
Cables and BOS.
Transformer and switchgear.
SCADA hardware.
Buildings.
Land (if owned).
These are physical assets capitalised at cost and depreciated.
Intangible assets (AS-26/Ind AS 38):
Software (SCADA system, monitoring portal subscriptions).
Brand or trademark value.
Customer contracts (specific value).
Patents.
Goodwill.
These are non-physical assets capitalised and amortised separately.
For most solar projects, tangible assets dominate the balance sheet. Intangibles are a smaller component.
Amortisation
Intangibles are amortised over their useful life:
Software: Typically 3 to 10 years depending on type. Custom enterprise software often 10 years. Annual licenses are expensed rather than capitalised.
Patents: Lesser of legal life or useful life.
Goodwill under AS-26: 10 years typical. Under Ind AS 38: no amortisation, impairment tested.
Development rights: Per useful life of underlying project.
Customer contracts: Per contract term.
The amortisation expense reduces profit and balance sheet value over time, similar to depreciation but for intangibles.
For tax purposes:
Software is generally amortised under Section 36(1) of Income Tax Act.
Patents under Section 35.
Goodwill amortisation has specific tax rules.
Tax treatment may differ from accounting treatment.
Intangibles in solar SPVs
For solar SPVs (Special Purpose Vehicles), intangibles are typically modest:
Software for SCADA and monitoring: Capitalised at acquisition.
Development costs: Mostly capitalised as part of tangible plant (PPE), some specific items as intangibles.
Brand value: Not usually relevant for SPVs (they don’t have separate brands).
Goodwill: Only if SPV acquired another entity.
Most SPVs have small intangible balances relative to tangible plant.
For solar EPC contractors (parent companies):
Brand value can be significant.
Patents on proprietary processes.
Customer relationships from long-term contracts.
Goodwill from acquisitions.
Software and systems.
These intangibles may be more significant on the balance sheet.
Common AS-26 mistakes
Treating software as expense when it should be capitalised. Significant software costs typically capitalise.
Treating EPC consultancy as intangible. Consultancy directly related to tangible asset acquisition usually capitalises with the tangible asset.
Wrong amortisation period. Should match the asset’s useful life.
Not tracking intangibles separately. Mixing intangibles with tangibles confuses analysis.
Missing impairment review. Goodwill and other intangibles should be periodically reviewed for impairment.
Best practices
For solar IPPs and EPC contractors:
Classify intangibles separately from tangibles in accounting.
Use appropriate amortisation periods for each intangible category.
Maintain documentation supporting intangible classifications.
Conduct annual impairment reviews for goodwill and significant intangibles.
For tax planning, coordinate accounting intangibles with tax-deductible items.
For acquisitions, conduct proper purchase price allocation between tangibles, intangibles, and goodwill.
For lender’s diligence, intangible asset classifications are part of due diligence review.
Standards and references
AS-26 was the standard under Indian GAAP. Companies required to follow Indian Accounting Standards (Ind AS) use Ind AS 38 for intangible assets, which is more aligned with IFRS. The Institute of Chartered Accountants of India (ICAI) issues guidance and clarifications.
Related glossary terms
Key takeaways
AS-26 (Accounting Standard 26) governs the treatment of intangible assets in India under traditional Indian GAAP. For larger companies under Ind AS, Ind AS 38 supersedes AS-26 with similar underlying principles. For solar projects, AS-26/Ind AS 38 applies to intangibles such as software, brand value, development rights, patents, goodwill, and customer relationships. Tangible solar assets (modules, structures, inverters) are governed by AS-10/Ind AS 16 (Property, Plant and Equipment). Intangibles are amortised over their useful life, similar to depreciation for tangibles but with different mechanics. For most solar SPVs, tangible assets dominate the balance sheet; intangibles are a smaller component.