Page 2 - 4. COMPILER QB - INDAS 38

INDAS – 38

INTANGIBLE ASSETS

(TOTAL NO. OF QUESTIONS – 8)

INDEX

S.No. Particulars Page No.
1 RTP Questions 4.1

2 Past Exam Questions 4.7

RTPs QUESTIONS

Q1 (RTP Nov. 18)

In the year to March, 2018, ABC Ltd. spent considerable amounts on designing a new product. ABC Ltd. spent
the six months from April, 2017 to September, 2017 researching the feasibility of the product. Mr. X charged
these research costs to profit or loss. From October, 2017, .ABC Ltd was confident that the product would be
commercially successful and A Ltd. is fully committed to finance its future development. ABC Ltd. spent the

remaining part of the year in developing the product, which is expected to start selling in the next few
months. These development costs have been recognised as intangible assets in the Balance Sheet. State
whether the treatment done by Mr. X is correct when all these research and development costs are design
costs Justify your answer with reference to relevant Ind AS.

SOLUTION
As per Ind AS 38 ‘Intangible Assets’, the treatment of expenditure on intangible items depends on how it
arose. Internal expenditure on intangible items incurred during the research phase cannot be recognised as an
asset. Once it can be demonstrated that a development project is likely to be technically feasible,

commercially viable, overall profitable and can be adequately resourced, then future expenditure on the project
can be recognised as an intangible asset.
The difference in the treatment of expenditure up to 30th September, 2017 and expenditure after that date is
due to the recognition phase i.e. research or development phase. Since ABC Ltd is confident that the product

will be commercially successful and is fully committed to finance its future development, the conditions at
development stage seem to have met and hence the treatment is justified.

Q2 (RTP Nov. 18 + MTP Oct 19)

A Ltd. intends to open a new retail store in a new location in the next few weeks. It has spent a substantial
sum on a series of television advertisements to promote this new store. It has paid for advertisements costing
st
Rs. 8,00,000 before 31 March, 2018. Rs. 7,00,000 of this sum relates to advertisements shown before
st
st
31 March, 2018 and Rs. 1,00,000 to advertisements shown in April, 2018. Since 31 March, 2018, A Ltd. has
4.1