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Non-current assets: Acquisition and depreciation
4.3 Research and development costs
Research
IAS 38 Intangible Assets 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
IAS 38 Intangible Assets defines development as 'the application of research
knowledge...to a plan or design for the production of new or substantially
improved materials, devices, products....before the start of commercial
production or use' (IAS 38 para 8).
Development expenditure is a particular class of research expenditure that meets
certain criteria and which therefore enables a separate accounting treatment to be
applied to it.
Development expenditure 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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