DipIFR Syllabus B. Elements of financial statements - Research and development - Notes ^{4 / 4}

Research

Research is investigation to get new knowledge and understanding

• All goes to I/S

Development

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.