ADVISE the appropriate accounting treatment for the research and development costs incurred by Bhavna to make construction process more efficient…

Ind AS 38 'Intangible Assets' requires an intangible asset to be recognized if, and only if, certain criteria are met. Intention to complete the asset is apparent as it is a major project with full support from boardFinance is available as resources are focused on projectCosts can be reliably measuredBenefits are expected to exceed costs – (in 3 years)Regulatory approval which was received on June 1, 2023 Regulatory approval for the project was received on June 1, 2023. The project was completed on April 30, 2024. Costs of 24,00,000 incurred until March 31, 2024 have been recognized as an intangible asset. This is incorrect. Expenses incurred prior to June 1, 2023 should be expensed out. Assuming that - 24,00,000 has been incurred evenly from 1st April 2023,4,00,000 has been charged to Profit and Loss account. Retrospective recognition of expense as an asset is not allowed. Expenses incurred between June 1, 2023 and March 31, 2024 should be capitalized:24,00,000×10/12 = 20,00,000 Ind AS 36 'Impairment of assets' requires an intangible asset not yet available for use to be tested for impairment annually. As of March 31, 2024 the asset is not yet available for use, hence it has to be tested for impairment. Cash flow of 19,00,000 in perpetuity would clearly have a present value in excess of 19,00,000 and hence there would be no impairment. However, the research head Mrs. Sinha is technically qualified, so impairment tests should be based on her estimate of a five-year remaining life and so present value of the future cost savings of 18,00,000 should be considered in that case.18,00,000 is greater than the offer received (fair value less cost to sell) of 17,00,000 and so - 18,00,000 should be used as the recoverable amount. The carrying amount should be consequently reduced to 18,00,000. Calculation of Impairment loss of intangible asset under development: Particulars Amount (₹) Carrying amount of intangible asset as of March 31,2024 20,00,000 Less Recoverable amount (18,00,000) Impairment loss 2,00,000 Impairment loss of 2,00,000 is to be recognized in the profit and loss for the year 2023-24. Necessary adjusting entry to correct books of account will be: Particulars Particulars ₹ Operating expenditure – Development expenditure Dr 4,00,000 Operating expenses – Impairment loss Dr 2,00,000 To Intangible asset under development 6,00,000