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CA Intermediate · Advanced Accounting · AS 26 Intangible Assets

Kaveri Pharma Ltd. incurred Rs 18 lakh on a research project to find a new drug formulation. Technical and commercial feasibility has not yet been established. In the same year, it spent Rs 6 lakh on staff training for the project team. As per AS 26, what amount should be recognised as an intangible asset at the year end?

No intangible asset is recognised, so the answer is nil. Under AS 26, research phase expenditure is expensed as incurred, and staff training costs are also expensed. With feasibility not established, the entire Rs 24 lakh goes to profit and loss.

  1. ARs 24 lakh
  2. BRs 18 lakh
  3. CRs 6 lakh
  4. DNilCorrect

Explanation

Expenditure on research is always recognised as an expense when incurred, and training costs are also expensed under AS 26. Since the project is still at the research phase, the total Rs 24 lakh is charged to the Statement of Profit and Loss. Capitalising Rs 18 lakh would wrongly treat research as development.

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