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CA Intermediate · Advanced Accounting · AS 26 Intangible Assets

Kaveri Pharma Ltd incurred Rs 12 lakh on a research phase of a new drug formulation and, after technical feasibility was demonstrated and all AS 26 criteria were met, a further Rs 30 lakh on development. How much should be recognised as an intangible asset?

Rs 30 lakh is recognised as an intangible asset. AS 26 requires research phase expenditure to be charged to profit and loss as incurred, while development expenditure is capitalised once the specified criteria are demonstrated. The Rs 12 lakh research cost is therefore expensed.

  1. ARs 42 lakh
  2. BRs 30 lakhCorrect
  3. CRs 12 lakh
  4. DRs 18 lakh

Explanation

Under AS 26, research expenditure is expensed when incurred. Only development expenditure after the recognition criteria are met is capitalised. So the intangible asset is Rs 30 lakh and Rs 12 lakh goes to the statement of profit and loss. Rs 42 lakh wrongly capitalises research cost.

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