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CA Intermediate · Advanced Accounting · AS 26 Intangible Assets

Rao Software Ltd began developing an accounting package. Expenditure: Rs 8 lakh from April to June (before criteria were met), and Rs 6 lakh in July-September after all recognition criteria were first met. Rs 4 lakh was spent in October-December on staff training for using the package. Company also paid Rs 3 lakh in January for a marketing campaign. What is the cost of the internally generated intangible asset?

The asset is recorded at Rs 6 lakh. AS 26 allows capitalisation only of development spending incurred after the recognition criteria are first met; earlier expense cannot be reinstated, and training and marketing costs are never part of the cost.

  1. ARs 21 lakh
  2. BRs 6 lakhCorrect
  3. CRs 14 lakh
  4. DRs 10 lakh

Explanation

Only expenditure from the date the criteria are first met is capitalised: Rs 6 lakh. Earlier expenditure cannot be reinstated, and training and marketing costs are expensed. Rs 14 lakh wrongly adds the pre-criteria Rs 8 lakh; Rs 10 lakh wrongly adds training.

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