A Ltd. has incurred - 1,00,000 of research expenditure on a project to develop a new type of fuel and has expensed these costs. B Ltd. purchases the…

(a) As per para 24 of Ind AS 38, an intangible asset shall be measured initially at cost. Furthermore, para 25 states that normally, the price an entity pays to acquire separately an intangible asset will reflect expectations about the probability that the expected future economic benefits embodied in the asset will flow to the entity. In other words, the entity expects there to be an inflow of economic benefits, even if there is uncertainty about the timing or the amount of the inflow. Therefore, the probability recognition criterion is always considered to be satisfied for separately acquired intangible assets. Accordingly, B Ltd. recognises - 1,50,000 as the cost of the acquired research project. Further, as per para 42 of the standard, research or development expenditure that: (a) relates to an in-process research or development project acquired separately and recognised as an intangible asset; and (b) is incurred after the acquisition of that project shall be accounted for. However, as per para 54 of the standard, expenditure on research phase of an internal project shall be recognised as an expense when it is incurred. Hence, the subsequent research costs of 2,00,000 are expensed as incurred. Further, an intangible asset arising from development phase of an internal project shall be recognised if, and only if, an entity can demonstrate all of the conditions stated therein under point a to f of para 57. Since, the subsequent development costs incurred of 3,00,000 do not meet the conditions for recognition and are expensed as incurred. Further development costs of 1million must be recognised, because they meet the conditions for recognition as an intangible asset. It may be noted that as per para 71 of the standard, the previously written-off development costs are not reinstated. The marketing costs and initial losses of 2,00,000 are expensed as incurred as per paras 67 and 69 of the standard. Accordingly, the intangible asset's carrying amount, when production and sale of the product commences, is 11,50,000.