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CA Intermediate · Advanced Accounting · AS 26 Intangible Assets

Veda Textiles Ltd. incurred Rs 8 lakh on a research phase to find a new dye formula and Rs 12 lakh on a subsequent development phase, after all AS 26 criteria for recognising an intangible asset arising from development were demonstrated. The Rs 12 lakh was spent after the criteria were met. What amount will be recognised as an intangible asset?

Rs 12 lakh is capitalised as an intangible asset. Under AS 26, research-phase expenditure is always charged to profit and loss, while development expenditure is capitalised once all the recognition criteria are demonstrated. So only the development spend of Rs 12 lakh qualifies.

  1. ARs 20 lakh
  2. BRs 12 lakhCorrect
  3. CRs 8 lakh
  4. DNil

Explanation

Research expenditure of Rs 8 lakh must be expensed when incurred. Development expenditure of Rs 12 lakh incurred after the recognition criteria are met is capitalised. Rs 20 lakh is wrong because it capitalises the research phase too.

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