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Intangible assets
Research and development
2.1 Recognition
IAS 38 IAS 38 defines research as 'original and planned investigation undertaken
with the prospect of gaining new scientific or technical knowledge and
understanding' (IAS 38, para 8). All research expenditure must be written off to the
statement of profit or loss as it is incurred.
Development costs are defined as '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 before
the start of commercial production or use' (IAS 38, para 8).
Development costs are a particular class of research expenditure that meets certain
criteria and which therefore enables a separate accounting treatment to be applied to
it.
Development costs must be capitalised as an intangible asset on the statement of
financial position provided that all of the following criteria are met:
Separate project
Expenditure identifiable and reliably measured
Commercially viable
Technically feasible
Overall profitable
Resources available to complete
If the above criteria are not met, development expenditure is treated as research
activity and must be written off to the statement of profit or loss as it is incurred.
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