An acquired project does not make all later spending an asset
Ind AS 38 paragraphs 42–43 address subsequent expenditure on acquired in-process research and development recognised as an intangible asset. Expenditure on research is expensed. Development expenditure is also expensed unless it meets paragraph 57. Subsequent expenditure meeting those criteria is added to the acquired project's carrying amount.
Read the applicable text: MCA Ind AS 38, paragraphs 42–43 and 52–71, 97 MCA Ind AS 36, intangible assets not yet available for use.
Fix the opening amount independently
Identify the acquired asset, acquisition date, initial measurement basis and project scope. In a business combination the applicable acquisition accounting is separate from the later spending decision. Do not use the purchase-price allocation or acquisition approval as evidence that every later technical stage satisfies the development criteria.
Prove the date all development criteria are met
Paragraph 57 requires technical feasibility, intention to complete and use or sell, ability to use or sell, probable future benefits, adequate resources, and reliable measurement of attributable expenditure. Use dated engineering, market, funding and cost evidence. Capitalisation starts when all criteria are first met; the date of internal approval does not automatically establish that date. If research and development cannot be distinguished, treat spending as research under the applicable Ind AS 38 guidance. Do not reinstate amounts previously expensed as part of the cost merely because the project subsequently qualifies.
Separate attributable development from other costs
Map eligible expenditure to the specific project and qualification period. Exclude training to operate the asset. Exclude selling, administrative and other general overheads unless they can be directly attributed to preparing the asset for use, as paragraph 67 specifies. Where costs straddle a qualification date, split using contemporaneous evidence such as time records and milestone acceptance. Do not capitalise the entire vendor invoice because it was booked after the gate.
Review impairment and availability separately
Under Ind AS 36, test an intangible asset not yet available for use for impairment annually and when indicators require it. A qualifying development spend does not remove that obligation. Once a finite-life asset is available for use, start amortisation under Ind AS 38. Keep the availability date, useful life and impairment evidence linked to the project register.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Separate three categories
An acquired project is recorded at ₹80 lakh. Post-acquisition research is ₹7 lakh, development before all criteria are met is ₹9 lakh and eligible later development is ₹12 lakh. Expense ₹16 lakh and carry ₹92 lakh before amortisation or impairment.
Illustrative example 2: Split a mixed vendor invoice
An ₹18 lakh invoice includes ₹5 lakh for feasibility exploration, ₹10 lakh for evidenced qualifying development and ₹3 lakh for training. Capitalise ₹10 lakh and expense ₹8 lakh on the stated facts.
Illustrative example 3: Do not reinstate earlier costs
An entity expensed ₹14 lakh before the qualification date and later incurs ₹11 lakh meeting the criteria. If opening acquired project cost is ₹45 lakh, the carrying amount before other movements is ₹56 lakh, not ₹70 lakh.
Illustrative example 4: One resource condition remains unmet
A ₹6 lakh work package meets other development criteria but adequate resources are not demonstrated. No later change is assumed. Expense ₹6 lakh; none qualifies under paragraph 57.
Illustrative example 5: Review recoverability before use
A project has ₹65 lakh carrying amount and supported recoverable amount of ₹52 lakh, assuming it is tested at that level. The impairment is ₹13 lakh despite the project still being under development.
Illustrative example 6: Start amortisation at readiness
An acquired project plus eligible development has a ₹72 lakh carrying amount at readiness. With six years' remaining useful life, nil residual and straight line, annual amortisation is ₹12 lakh; a supported three-month period gives ₹3 lakh.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify the acquired intangible | Acquisition agreement and asset record |
| 2 | Tie opening measurement to acquisition | Valuation or purchase-price working |
| 3 | Define project and stage | Engineering and project records |
| 4 | Separate research activities | Stage descriptions and cost centres |
| 5 | Prove each development criterion | Technical, commercial and funding evidence |
| 6 | Identify the first supported date | Dated approval and underlying evidence |
| 7 | Allocate attributable costs | Invoices, time sheets and cost working |
| 8 | Keep prior expense out of the asset | Expense-to-asset reconciliation |
| 9 | Review impairment and readiness | Recoverable amount and availability records |
| 10 | Tie amortisation and carrying amount | Closing asset register and review |
Sixteen practitioner FAQs
1. Does acquiring R&D justify capitalising subsequent research?
No. Apply the rules for subsequent expenditure.
2. Can the earlier purchase price remain an asset while later costs are expensed?
Yes, subject to the acquired asset's own accounting and impairment review.
3. Which paragraph gives the development criteria?
Paragraph 57 of Ind AS 38.
4. Is technical feasibility alone sufficient?
No. All specified criteria must be demonstrated.
5. What if research and development cannot be separated?
Apply the research-stage treatment.
6. Can funding evidence be relevant?
Yes. Adequate resources are a required criterion.
7. Is a vendor invoice date the qualification date?
No. Establish when the work occurred and the criteria were met.
8. Can previously expensed amounts be reinstated after success?
No. Do not include earlier expensed amounts in later asset cost.
9. How do I treat training costs?
Keep them out of qualifying development cost under the standard.
10. Can capitalisation continue after the asset is ready for use?
Assess any subsequent spending independently; do not continue by default.
11. When does finite-life amortisation start?
When the asset is available for use.
12. Must an unavailable asset be tested only if there is a warning sign?
Ind AS 36 also requires annual testing for an intangible not yet available for use.
13. Can project records substitute for a recoverable amount assessment?
No. Use the applicable impairment measurement and evidence.
14. Does the same analysis determine tax deductibility?
No. Prepare a separate tax analysis.
15. What if qualifying and nonqualifying costs share one invoice?
Allocate on supported evidence and document the basis.
16. What is the central reconciliation?
Acquired opening amount plus eligible additions, less applicable impairment and amortisation.
Official sources
MCA Ind AS 38, paragraphs 42–43 and 52–71, 97 MCA Ind AS 36, intangible assets not yet available for use