ACCA FR December 2026: The IAS 38 Development Cost Trap That Costs Marks

If you capitalise a single dollar of research cost in FR, you have thrown away marks. Research is always expensed; development is capitalised only once every IAS 38 criterion is met, and amortisation starts when the asset is ready for use, not before.

What FR examiners keep seeing

Intangible assets under IAS 38 turn up in Section B and in the consolidation and accounts-preparation questions as a "small" adjustment worth 3 to 4 marks. Those marks are easy to win, and routinely lost for the same three reasons: capitalising costs incurred before the criteria were met, starting amortisation too early, and failing to state why the treatment is correct.

IAS 38 is binary. Research phase costs go to profit or loss as incurred. Development costs are capitalised from the date the project meets all six criteria, and only from that date. Think PIRATE: Probable future economic benefits, Intention to complete, Resources available, Ability to use or sell, Technical feasibility, and Expenditure reliably measured.

Two rules catch candidates out. First, costs already expensed before the criteria were met cannot be reinstated later as an asset. Second, amortisation begins when the asset is available for use, usually the start of commercial production, and runs over its useful life. A project still in development at the year end carries cost but no amortisation charge.

Internally generated brands, mastheads and customer lists are never recognised. If the scenario mentions them, say so in one sentence and move on.

Worked example

A company spends $240,000 on a new product from 1 January to 30 September 20X6. On 1 October the project meets all six criteria, and a further $150,000 is spent in October to December. Commercial production starts on 1 January 20X7. Year end is 31 December 20X6.

Wrong answer: Capitalise $390,000 and charge amortisation for three months. This is wrong twice. The pre-October spend was research or pre-criteria development, and the asset was not yet available for use.

Correct answer: Expense $240,000 to profit or loss. Capitalise $150,000 as an intangible asset in the statement of financial position. Amortisation for the year: nil. From 1 January 20X7, amortise over the useful life, for example $150,000 over five years is $30,000 a year.

What to do

1. Find the date. Underline the exact date the scenario says feasibility is confirmed or finance is secured. Everything before it is an expense, full stop.

2. Check "ready for use" before amortising. Ask whether sales or production have started. If not, the amortisation line is nil, and writing "nil" earns the mark.

3. Name the criteria. If the question says "explain" or "discuss", list the relevant PIRATE criteria and tie one to the facts. One applied sentence beats a recited list.

Check the IAS 38 requirements against the current ACCA FR syllabus and study guide, and practise a two-line journal for each treatment: Dr Profit or loss, or Dr Intangible assets, with Cr Cash or Payables.

The bottom line

IAS 38 is a short topic with a precise rule, which makes it one of the cheapest sets of marks in FR. Get the date right, get the amortisation start right, and the 3 to 4 marks are yours.

Research is an expense. Development is an asset only when the criteria say so.