Syllabus C. Reporting The Financial Performance Of A Range Of Entities C2. Non Current Assets

C2d. Research and development 16 / 16

Syllabus C2d)

Discuss and apply the accounting treatment of intangible assets including the criteria for recognition and measurement subsequent to acquisition.

Research is expensed, Development is often an asset.


Research is investigation to get new knowledge and understanding

  • All goes to I/S


Under IAS 38, an intangible asset must demonstrate all of the following criteria:

(use pirate as a memory jogger)

  1. Probable future economic benefits

  2. Intention to complete and use or sell the asset

  3. Resources (technical, financial and other resources) are adequate and available
    to complete and use the asset

  4. Ability to use or sell the asset

  5. Technical feasibility of completing the intangible asset (so that it will be available
    for use or sale)

  6. Expenditure can be measured reliably

Once capitalised they should be amortised.

Amortisation begins when commercial production has commenced.

Once capitalised they should be amortised

The cost of the development expenditure should be amortised over the useful life.  

Therefore, the cost of the development expenditure is matched against the revenue it produces.

Amortisation must only begin when the asset is available for use (hence matching the income and expenditure to the period in which it relates). 

It is an expense in the income statement:

  • Dr Amortisation expense (I/S)
    Cr Accumulated amortisation (SFP)

It must be reviewed at the year-end to check it still is an asset and not an expense.

If the criteria are no longer met, then the previously capitalised costs must be written off to the statement of profit or loss immediately.