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CA Intermediate · Advanced Accounting · AS 26 Intangible Assets

Sarvam Pharma Ltd. spent ₹40 lakh on a research phase to find a new drug formulation and then ₹25 lakh on development after all AS 26 criteria for recognition as an intangible asset were demonstrably met. Which amount should be recognised as an intangible asset?

₹25 lakh is recognised as an intangible asset. AS 26 requires all research-phase expenditure to be expensed as incurred, while development expenditure is capitalised once the recognition criteria are demonstrated. The ₹40 lakh research cost is therefore charged to profit and loss.

  1. A₹65 lakh
  2. B₹40 lakh
  3. C₹25 lakhCorrect
  4. DNil, since both are expenses

Explanation

Under AS 26, research-phase expenditure is always charged to profit and loss. Development expenditure is capitalised only from the point when all criteria are met. So only ₹25 lakh is capitalised. Capitalising ₹65 lakh wrongly includes research cost.

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