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CA Intermediate · Advanced Accounting · AS 26 Intangible Assets

Kaveri Pharma Ltd began a project to develop a new drug formulation on 1 April 2025. Costs: Rs 12 lakh in April-August (research phase); Rs 4 lakh in September (development phase, but the AS 26 recognition criteria were not yet demonstrated); and Rs 18 lakh in October-March, by when all the recognition criteria were met from 1 October. What amount should be capitalised as an intangible asset at 31 March 2026, and how much is charged to profit and loss?

Rs 18 lakh is capitalised and Rs 16 lakh is expensed. Research costs of Rs 12 lakh and the Rs 4 lakh development spend before the recognition criteria were met are charged to profit and loss; only spend from 1 October qualifies.

  1. ACapitalised Rs 18 lakh; charged to profit and loss Rs 16 lakhCorrect
  2. BCapitalised Rs 22 lakh; charged to profit and loss Rs 12 lakh
  3. CCapitalised Rs 34 lakh; charged to profit and loss Nil
  4. DCapitalised Rs 30 lakh; charged to profit and loss Rs 4 lakh

Explanation

Research costs of Rs 12 lakh are always expensed. Development costs are capitalised only from the date all criteria are met (1 October), so the Rs 4 lakh for September is expensed and cannot be reinstated later. Capitalised amount = Rs 18 lakh; expense = 12 + 4 = Rs 16 lakh. Option B wrongly includes September in the asset.

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