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X Limited engaged in the business of manufacturing fertilisers entered into a technical collaboration agreement with a foreign company Y Limited. As…

CA Final · Financial Reporting · MTP · May 2026

X Limited engaged in the business of manufacturing fertilisers entered into a technical collaboration agreement with a foreign company Y Limited. As a result, Y Limited would provide the technical know-how enabling X Limited to manufacture fertiliser in a more efficient way. X Limited paid - 10,00,00,000 for the use of know-how for a period of 5 years. X Limited estimates the production of fertiliser as follows: Year (In metric tons) 1 50,000 2 70,000 3 1,00,000 4 1,20,000 5 1,10,000 At the end of the 1 st year, it achieved its targeted production. At the end of 2 nd year, 65,000 metric tons of fertiliser was being manufactured, and X Limited considered to revise the estimates for the next 3 years. The revised figures are 85,000, 1,05,000 and 1,15,000 metric tons for year 3, 4 & 5 respectively. Advise how X Limited will amortise the technical know-how fees as per Ind AS 38.

Suggested Answer and Working Notes:

Based on the above data, it may be suitable for X Ltd. to use unit of production method for amortisation of technical know-how. The total estimated unit to be produced 4,50,00 MT. The technical know-how will be amortised on the basis of the ratio of yearly production to total production. The first-year charge should be a proportion of 50,000 / 4,50,000 on 10,00,00,000 = 1,11,11,111. At the end of 2 nd year, as per revised estimate the total number of units to be produced in future are 3,70,000 MT (i.e. 65,000 + 85,000 + 1,05,000 + 1,15,000). The amortisation for second year will be 65,000 / 3,70,000 on (10,00,00,000 – 1,11,11,111) = 1,56,15,615. Amortisation for remaining years (unless the estimates are again revised): Year 3 = 85,000 / 3,70,000 on (10,00,00,000 – 1,11,11,111) = 2,04,20,420 Year 4 = 1,05,000 / 3,70,000 on (10,00,00,000 – 1,11,11,111) = 2,52,25,225 Year 5 = 1,15,000 / 3,70,000 on (10,00,00,000 – 1,11,11,111) = 2,76,27,628

Topics: Ind AS 23, Ind AS 19

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X Limited engaged in the business of manufacturing fertilisers entered into a technical collaboration agreement with a foreign company Y Limited. As…

Suggested Answer and Working Notes:

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