Recognise the acquisition and later spending through separate decisions
Where an in-process research or development project has been acquired separately or in a business combination and recognised as an intangible asset, Ind AS 38 paragraphs 42–43 require subsequent expenditure to be assessed under the research/development criteria. Later research is expensed. Later development expenditure is added to the acquired project only when it satisfies the recognition criteria. The original purchase asset is not a standing authorisation to capitalise every later invoice. ICAI: Ind AS 38, paragraphs 33–34, 42–43, 53–62, 65, 71 and 97.
Preserve the basis of the acquired opening asset
First document what was acquired, the identifiable rights, control and the appropriate initial measurement under the acquisition route. Paragraphs 33–34 address business-combination recognition, including qualifying acquired in-process projects separately from goodwill. This guide starts from a validly recognised acquired project; it does not treat a project label or a payment as sufficient proof of that initial recognition. Its focus is the subsequent-spending decision for Ind AS reporting, checked on 26 October 2026.
Use dated evidence for all development criteria
Paragraph 57 requires evidence of feasibility, intention to complete, ability to use or sell, probable future benefits, adequate resources and reliable cost measurement. A budget approval supports only some of that assessment. Link engineering evidence, commercial or internal-use benefits, completion resources and the costing system to the date the complete recognition case is demonstrable. Classify the activity by substance: continued searching for alternatives can remain research even after an asset was purchased.
Build project cost codes that preserve the decision boundary
Maintain separate codes for the acquired asset, subsequent research, development before the criteria are met, qualifying later development and other expenditure. For each proposed addition, identify the service period, activity, project and supporting evidence. Do not use the invoice-payment date as the only recognition trigger. Where internal phases cannot be distinguished, paragraph 53 treats that expenditure as research. Prior amounts properly expensed cannot be reinstated simply because the project later succeeds; paragraphs 65 and 71 explain the relevant cost boundary.
Capitalisation is followed by measurement and disclosure checks
A valid addition is not proof that the closing carrying amount is recoverable. Complete the applicable impairment review, and determine when the asset is available for use and amortisation should begin under paragraph 97. The examples deliberately assume the project is not yet available for use and isolate additions before any required impairment or other measurement adjustment. Do not present those intermediate totals as fully verified closing carrying amounts. The ICAI compendium supplies the actual standard text; the 12 August 2026 Ind AS amending notification reviewed for this guide does not change these Ind AS 38 provisions.
Avoid acquisition-ledger shortcuts
Common mistakes are capitalising an entire acquired-project cost centre, reviving previously expensed research, using a signed acquisition agreement as evidence of completion resources indefinitely, and confusing project additions with purchase-price adjustments. Resolve what each payment represents before measuring it. Where facts show a distinct acquired right or another asset rather than subsequent R&D, assess that item under its own applicable recognition requirements. The calculations below assume all stated qualifying development costs are directly attributable, reliably measured and otherwise eligible.
Applicable primary references
ICAI: Ind AS 38, paragraphs 33–34, 42–43, 53–62, 65, 71 and 97 ICAI: 2025–26 Ind AS compendium, Volume II Gazette of India: G.S.R. 725(E), 12 August 2026, primary notification reproduced on CA2013
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Research after the purchase remains an expense
An acquired project has a valid opening asset of ₹30,00,000. Subsequent research costs ₹4,00,000. The project-addition amount is ₹0 and research expense is ₹4,00,000. The asset remains ₹30,00,000 before any separate measurement adjustment; capitalising the research would overstate that intermediate asset total by ₹4,00,000.
Illustrative example 2: Development fails the resources test
Opening acquired asset is ₹20,00,000. Later development spending is ₹6,00,000, but adequate completion resources cannot be demonstrated and the paragraph 57 criteria are not all satisfied. Expense ₹6,00,000; qualifying addition is ₹0. The purchase does not cure the missing criterion.
Illustrative example 3: A documented recognition date divides later spending
Opening acquired asset is ₹25,00,000. Subsequent development costs ₹8,00,000, comprising ₹3,00,000 before all criteria are demonstrable and ₹5,00,000 after that date. Expense ₹3,00,000 and add ₹5,00,000. The intermediate project total is ₹30,00,000 before separate measurement adjustments.
Illustrative example 4: Research and qualifying development coexist
An acquired project starts at ₹40,00,000. Later work comprises research ₹2,50,000, development failing the criteria ₹1,50,000, and eligible development ₹7,00,000. Current expense for these items is ₹4,00,000; the addition is ₹7,00,000. The intermediate asset total is ₹47,00,000, not the full ₹51,00,000 project ledger total.
Illustrative example 5: Success does not reinstate properly expensed amounts
Opening acquired asset is ₹15,00,000. Research of ₹2,00,000 was properly expensed in earlier financial statements. Current eligible development is ₹4,50,000. Add only ₹4,50,000, producing an intermediate asset total of ₹19,50,000. Reviving the earlier expense would overstate it by ₹2,00,000. This example is not the correction of an earlier accounting error.
Illustrative example 6: Reconcile several projects independently
Project A opens at ₹18,00,000 and has eligible additions ₹3,00,000 plus expensed research ₹1,00,000. Project B opens at ₹12,00,000 and has ₹2,00,000 of development failing the criteria. Combined opening assets are ₹30,00,000, additions ₹3,00,000 and current project expenses ₹3,00,000. Combined intermediate assets are ₹33,00,000 before separate measurement adjustments; A’s evidence cannot justify B’s costs.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm the reporting framework | Ind AS applicability and current standard version. |
| 2 | Ground the acquired project | Rights, control and identifiable-asset evidence. |
| 3 | Support the opening asset | Separate-acquisition or business-combination measurement working. |
| 4 | Separate subsequent activities | Research, development and other items classified by substance. |
| 5 | Date the full recognition case | Evidence for every paragraph 57 criterion. |
| 6 | Test each proposed addition | Project linkage, timing, reliable measurement and eligible direct cost. |
| 7 | Preserve expense history | No reinstatement of amounts properly expensed merely because circumstances improve. |
| 8 | Reconcile each project | Opening asset, eligible additions and excluded current expenses. |
| 9 | Apply subsequent measurement | Recoverability, available-for-use date and amortisation analysis. |
| 10 | Complete the reporting file | Required disclosures, reconciliations and unresolved judgement evidence. |
Sixteen practitioner FAQs
1. Does an acquired project make all later spending capital?
No. Paragraphs 42–43 require a separate assessment of subsequent research and development expenditure.
2. Does the rule cover only business combinations?
It also refers to projects acquired separately and recognised as intangible assets.
3. What is the starting assumption in these illustrations?
The opening acquired project was validly recognised; initial acquisition accounting is already supported.
4. What happens to later research spending?
It is expensed when incurred under the applicable research requirements.
5. Can development be expensed even after an acquisition?
Yes, where it fails the required recognition criteria.
6. Are feasibility and a board budget enough?
No. All paragraph 57 criteria must be demonstrable.
7. Why is the recognition date important?
It distinguishes expenditure incurred before the complete case is established from qualifying later expenditure.
8. Can payment timing replace activity evidence?
No. Establish the work performed, period and recognition conditions.
9. What if research and development phases cannot be distinguished?
Paragraph 53 treats that internal expenditure as research.
10. Can successful completion revive properly expensed research?
No. Later success does not permit reinstatement of those past expenses as asset cost.
11. Is an earlier accounting error the same issue?
No. Error correction requires its own applicable analysis; the examples concern amounts properly expensed.
12. Can one project’s feasibility report support every project?
No. Link evidence and proposed costs to the actual project concerned.
13. Are the intermediate asset totals final balance-sheet values?
No. Separate impairment, amortisation and other applicable measurement checks remain necessary.
14. When does amortisation become relevant?
For a finite-life asset, assess the available-for-use condition and paragraph 97 requirements.
15. Does expensing later research automatically write off the acquired asset?
No automatic conclusion follows; assess the acquired asset’s recoverability separately.
16. What should the acquisition-to-closing file contain?
The opening recognition basis, dated criteria evidence, cost classification, additions bridge and subsequent-measurement conclusions.
Conclusion
Buying an in-process R&D asset does not make all later project spending capital. Apply Ind AS 38’s research and development tests to subsequent expenditure.