Swift Limited acquired patent rights to manufacture Solar Roof Top Panels at a cost of 600lacs. The product life cycle has been estimated to be 5…

CA Intermediate · Advanced Accounting · RTP · January 2026
Swift Limited acquired patent rights to manufacture Solar Roof Top Panels at a cost of 600lacs. The product life cycle has been estimated to be 5 years and the amortization was decided in the ratio of future cash flows which are estimated as under: Year 1 2 3 4 5 Cash Flows (₹ in lacs) 300 300 300 150 150 After 3rd year, it was estimated that the patents would have an estimated balance future life of 3 years and Swift Ltd. expected the estimated cash flow after 5th year to be 75Lacs. Determine the amortization cost of the patent for each of the above years as per Accounting Standard 26.

Suggested Answer and Working Notes:

Amortization of cost of patent as per AS 26 Year Estimated future cash flow (₹ in lakhs) Amortization Ratio Amortized Amount (₹ in lakhs) 1 300 .25 150 2 300 .25 150 3 300 .25 150 4 150 .10 60 5 150 .10 60 6 75 .05 30 1.00 600 In the first three years, the patent cost will be amortized in the ratio of estimated future cash flows i.e. (300: 300: 300: 150: 150).The unamortized amount of the patent after third year will be 150lakh (600-450) which will be amortized in the ratio of revised estimated future cash flows (150:150:75 or 2:2:1) in the fourth, fifth and sixth year.

Topics: AS 26

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