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CA Intermediate · Advanced Accounting · AS 26 Intangible Assets

Kaveri Textiles Ltd. incurred Rs 18,00,000 on a research phase of a new dye formula and then, after the technical and commercial feasibility was demonstrated and all AS 26 recognition criteria were met, spent a further Rs 12,00,000 on development. What amount should be recognised as an intangible asset?

Only Rs 12,00,000 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 satisfied. The Rs 18,00,000 research cost is therefore expensed.

  1. ARs 30,00,000
  2. BRs 18,00,000
  3. CRs 12,00,000Correct
  4. DNil

Explanation

Under AS 26, research expenditure is always expensed when incurred. Development expenditure is capitalised only once the recognition criteria are met. So only Rs 12,00,000 is capitalised. Rs 30,00,000 wrongly includes research cost.

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