Revenue is not the default consumption measure
Ind AS 38 paragraphs 98A–98C presume revenue-based amortisation inappropriate, rebuttable only in the limited stated circumstances: a revenue-defined intangible or demonstrably high correlation between revenue and benefit consumption. Paragraphs 97–98 require a systematic method reflecting consumption, with straight-line where the pattern cannot be determined reliably. This guide was checked on 27 October 2026 against ICAI’s compendium and the subsequent 2026 amendment notification. It addresses method selection, not initial recognition or a general useful-life review. ICAI Ind AS 38: paragraphs 97–98C and 104.
Identify what changes when revenue changes
Separate output, selling price, inflation, other inputs and marketing effects. A revenue forecast can be easy to produce while being a poor consumption proxy. Document why the selected measure reflects the intangible’s benefits rather than merely management’s preferred expense profile. An observed sales correlation over one period is not automatically the demonstration required by the standard.
Test the rights embedded in the asset
Paragraphs 98B–98C discuss the predominant limiting factor, including a contract that expires on a specified cumulative revenue amount. Inspect the actual contract and whether the fixed revenue threshold genuinely limits the right. A business-plan sales target or a loan repayment forecast is not equivalent to a contractual revenue-defined intangible. Any other basis that better reflects consumption still needs consideration under the standard.
Keep the denominator and cost base supportable
For a units method, support expected lifetime output and actual consumption. For a justified revenue-defined model, identify the contractual threshold and the relevant revenue measure. Do not switch between gross revenue, net receipts and unrelated product sales to obtain a preferred answer. The illustrations assume a properly recognised finite-life asset, zero residual value, cost-model accounting, no impairment and the stated accepted consumption facts.
Review changes without disguising error correction
Paragraph 104 requires annual review of the period and method, with justified changes treated as estimate changes under Ind AS 8. Distinguish new evidence about consumption from an earlier failure to apply the standard correctly. These computations do not establish that a revenue exception is met merely because a neat ratio can be calculated; retain the supporting rights and consumption analysis before accepting a method.
Applicable primary references
ICAI Ind AS 38: paragraphs 97–98C and 104 MCA Gazette notification, 12 August 2026: subsequent Ind AS amendments
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Supported output pattern
A recognised intangible has amortisable amount ₹12,00,000 and accepted lifetime consumption of 1,00,000 units. Current use is 10,000 units. An appropriate units model gives ₹1,20,000, or 10% of the cost base. Output validity must be established separately.
Illustrative example 2: Revenue ratio conflicts with output
For that asset, current revenue is ₹60,00,000 and projected lifetime revenue ₹3,00,00,000. The revenue ratio is 20%, producing ₹2,40,000, double the ₹1,20,000 output-model charge. Assume the output model is supported and no revenue exception is established; the arithmetic convenience does not justify the larger charge.
Illustrative example 3: Price rise without extra units
An activity sells 10,000 units at ₹100, then the same volume at ₹120 in a comparable period. Revenue rises from ₹10,00,000 to ₹12,00,000, or 20%, with no increase in units. This illustrates why price-driven revenue growth alone cannot establish a 20% increase in asset consumption.
Illustrative example 4: Contractual revenue limit
Assume a recognised concession genuinely expires at a fixed cumulative revenue of ₹1,00,00,000, and assessment under paragraphs 98A–98C supports revenue as the appropriate basis. With amortisable cost ₹20,00,000 and current relevant revenue ₹10,00,000, the model charge is ₹2,00,000. The legal and accounting conclusion is an express assumption, not created by the ratio.
Illustrative example 5: Straight-line fallback
A finite-life asset has amortisable amount ₹9,00,000 and accepted six-year useful life, but no reliably determinable consumption pattern. Straight-line annual charge is ₹1,50,000 for a full available-for-use year. A forecast of faster sales alone does not replace the fallback.
Illustrative example 6: Prospective estimate illustration
After a valid earlier method, carrying amount is ₹6,00,000. Assume new evidence supports a change to even consumption over three remaining years, properly treated as an estimate change with zero residual value and no impairment. Future full-year charge is ₹2,00,000; do not restart the original gross cost or automatically rewrite earlier periods.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm recognised finite-life asset | Recognition and scope file |
| 2 | Identify amortisable amount | Cost, impairment and residual-value basis |
| 3 | Describe expected consumption | Operational and rights evidence |
| 4 | Separate price from output effects | Revenue decomposition |
| 5 | Apply the revenue presumption | Paragraph 98A assessment |
| 6 | Test any claimed exception | Contractual cap or substantiated correlation |
| 7 | Validate denominator and measures | Lifetime output or relevant contractual revenue |
| 8 | Calculate and compare models | Supported charge and sensitivity |
| 9 | Assess annual changes correctly | Estimate versus error review |
| 10 | Retain the selected method | Reasoned conclusion and disclosure working |
Sixteen practitioner FAQs
1. Is revenue-based amortisation always permitted?
No. The standard presumes it inappropriate subject to limited rebuttal circumstances.
2. Is it absolutely prohibited in every case?
No. Read and substantiate the specific exceptions.
3. Does a sales forecast prove benefit consumption?
Not by itself. Revenue reflects several other factors.
4. Why separate price and volume?
Price changes can change revenue without the same change in consumption.
5. Does inflation necessarily consume more of an intangible?
The standard explains why the price component can be unrelated to consumption.
6. What is a revenue-defined intangible in this context?
Assess rights genuinely limited by a fixed revenue amount, as described in paragraphs 98B–98C.
7. Does a management revenue target create that contractual limit?
No. Inspect the actual right and contract.
8. Is one period of correlation automatically conclusive?
No. The required demonstration needs substantiated analysis.
9. Are units always the correct method?
Use the measure that reliably reflects the expected benefit-consumption pattern.
10. What if no pattern is reliably determinable?
Paragraph 97 requires straight-line.
11. Can a denominator be changed to achieve a target expense?
Use supported consistent measures and document legitimate revisions.
12. Do the examples decide initial software capitalisation?
No. They assume valid recognition and isolate subsequent amortisation method.
13. Why assume zero residual value here?
It isolates method calculations; actual residual-value treatment requires its own standard-based assessment.
14. Must the method be reviewed?
Paragraph 104 requires review at least at each financial year-end.
15. Are all method corrections prospective estimates?
No. Distinguish new estimates from correcting an earlier error under the applicable standard.
16. What is the essential decision record?
The consumption evidence, revenue-presumption analysis, any supported exception and reproducible calculation.
Conclusion
Test the presumption against revenue-based amortisation and distinguish price-driven revenue movements from consumption of an intangible asset’s economic benefits.