Question

1. indicate the practical and conceptual reasons for the conclusion reached by the IASB on accounting and reporting practices for research and

   development costs?

Answer 1

IASB on accounting and reporting practices for research and

development costs?

Expenditure relates to R&D( Research and Development cost) fall into category of Intangible Asset . Intangible assets are covered under IFRS 10

Research – is defined as Planned Investigation . To gain New technical knowledge . new knowledge to develop new product . Most important No economic benefit expected in future

Development – Plan or design of new or improved material , product , process before start of the commercial production .

Expenditure relates to Research does not directly lead to future economic benefit . Also capitalization not allow so we need to write off to the Profit and loss account as incurred

Development –Same like research, development cost to be written off to the Profit & loss account as incurred .

Also as per SSAP 13 , there is an Option to defer the development expenditure. Development cost can be Capitalised under “ balance Sheet” or maintain to write off this cost to Profit and Loss account .

As per SSAP 13 , development cost are recognised as an Asset , they should be amortized over the period

IAS 38 ( defined Intangible assets identified as “ Non Monetary” asset without physical substance .

Standard states that an intangible asset is to be recognised if and only if the following criteria are met :

1. It is probable that future economic benefits from the asset will flow to the entity
2. The cost of asset reliable measured

Research phase – As discussed on above and as per IAS 38 states that research stage, it is impossible to understand that at the research stage any probable future economic benefit will generate . So standard allow to written off to th income Statement as an Expenses when incurred and will never be capitalised as as intangible

Under Development stage, Entity can capitalized this after considering following points :

1. Intention to complete and use or sell the asset
2. Separate identify the asset
3. Internally generated Intangible assets
4. Cost of the asset measured reliably

If above condition not able to meet , then charged to Profit/Loss account

Certain cases never come under Research & development , like :

1. Quality Control including routine testing of Products
2. Seasonal or other periodic design change
3. Any legal work, litigation etc