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CA Intermediate · Advanced Accounting · AS 26 Intangible Assets

Kaveri Pharma Ltd is developing a new formulation. Research costs of ₹14 lakh were incurred from April to June. Development costs of ₹9 lakh were incurred from July to September, before the company could demonstrate all the AS 26 criteria for recognising development costs. The criteria were first fully satisfied on 1 October, and development costs of ₹36 lakh were incurred from October to March. What amount should be capitalised as an intangible asset at 31 March?

The amount capitalised is ₹36 lakh. Research costs are expensed, and development costs incurred before all the recognition criteria were met are also expensed and cannot be capitalised later. Only development expenditure incurred from 1 October, when the criteria were satisfied, forms the cost of the intangible asset.

  1. A₹36 lakhCorrect
  2. B₹45 lakh
  3. C₹50 lakh
  4. D₹59 lakh

Explanation

Research costs (₹14 lakh) are always expensed. Development costs incurred before the recognition criteria were met (₹9 lakh) were already expensed and cannot be reinstated later. Only the ₹36 lakh incurred after 1 October is capitalised. Choosing ₹45 lakh wrongly includes the pre-criteria development cost.

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