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CA Intermediate · Advanced Accounting · AS 26 Intangible Assets

Kaveri Pharma Ltd incurred Rs 18 lakh on a research phase for a new formulation during 2025-26 and Rs 12 lakh on development after all AS 26 criteria for capitalisation were demonstrably met. Under AS 26, what amount is recognised as an intangible asset and what is expensed?

Rs 12 lakh is capitalised as an intangible asset and Rs 18 lakh is expensed. AS 26 requires research costs to be expensed as incurred, while development costs are capitalised only once the recognition criteria are demonstrated. Here the criteria are met for the Rs 12 lakh of development spending.

  1. AAsset Rs 12 lakh; expense Rs 18 lakhCorrect
  2. BAsset Rs 30 lakh; expense nil
  3. CAsset Rs 18 lakh; expense Rs 12 lakh
  4. DAsset nil; expense Rs 30 lakh

Explanation

Research expenditure is always recognised as an expense when incurred, so Rs 18 lakh is charged to profit and loss. Development expenditure is capitalised only once the AS 26 criteria are met, so Rs 12 lakh is capitalised. Capitalising the whole Rs 30 lakh wrongly treats research as development.

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