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CA Intermediate · Advanced Accounting · AS 26 Intangible Assets

Sundaram Software Ltd. incurred Rs 18,00,000 on a project to develop a new billing application. Research phase cost Rs 6,00,000. Development phase cost Rs 12,00,000, of which Rs 4,00,000 was spent before the company could demonstrate technical feasibility and the remaining Rs 8,00,000 after all AS 26 recognition criteria were met. What amount is recognised as an intangible asset?

Rs 8,00,000 is capitalised. Research cost is always an expense, and development cost is capitalised only from the point when all recognition criteria are met. The Rs 4,00,000 spent before feasibility was shown is expensed and cannot be added to the asset later.

  1. ARs 18,00,000
  2. BRs 12,00,000
  3. CRs 8,00,000Correct
  4. DRs 14,00,000

Explanation

Research expenditure (Rs 6,00,000) is always expensed. Development expenditure is capitalised only from the date all criteria are met, so only Rs 8,00,000 is capitalised. The Rs 4,00,000 incurred earlier is expensed and cannot be reinstated later. Rs 12,00,000 wrongly capitalises all development cost.

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