Whether the production of the movie 'Simran' is at the research or development stage under the relevant Ind AS. Explain the accounting treatment for…

Determination of research and development assumes significance for self-generated intangible assets as capitalisation of cost are permitted only from such time as recognition criteria Ind AS 38 are met. Under Ind AS 38, research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding. Whereas development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services prior to the commencement of commercial production or use. As per paragraph 57 of Ind AS 38, no intangible asset arising out of research phase of an internal project should be recognised. Thus, an intangible asset can be recognised only on the commencement of the development stage where the intangible asset can be identified, and the entity can demonstrate that future economic benefits are probable from the asset. Further, as per para 58 of Ind AS 38, an intangible asset arising from development or from the development phase of an internal project demonstrates that the asset will generate future economic benefits because development phase is further advanced than the research phase. In a movie production cycle, the ideation phase is likely to be ‘research' that is undertaken with the prospect of understanding the potential market for such a movie. Expenses, incurred prior to the date of the finalization of concept should be expensed considering the same as a cost in the research phase. This is because in the research phase of a project, it cannot be demonstrated that an intangible asset exists from which future economic benefits are probable. In the extant case, there is no identification of key cast and crew or the location. The filming set is also being deliberated and have not yet been finalised. Booking of the lead star cast is pending. Date of shooting has not been frozen. Accordingly, the production of movie ‘Simran' is at the research phase. Thus, cost incurred till date cannot be capitalised and should be expensed out in the statement of Profit and Loss when it is incurred.