Research and development – solution

UK
Option 1: Expense all costs

 Profit
and loss
account extract

Balance sheet 
extract
 
Expenses:
R&D

615,000
  

Option 2: Expense research as required and capitalise development costs

 Profit
and loss
account extract

Balance sheet 
extract
 
Expenses:
Research

125,000
  
Intangible asset:
Development costs
 
490,000
 

International

 Profit
and loss
account extract

Balance sheet 
extract
 
Expenses:
Research

125,000
  
Intangible asset:
Development costs
 
490,000
 

Summary

 UK
SSAP 13
International
IAS 38
Research costsExpenseExpense
Development
costs
Choice policy. If the recognition criteria are met, the company can choose to capitalise (if there is a reasonable expectation of future benefit) or expense.

Amortise when commercial production begins.

Review annually to ensure criteria are still met – if not, expense.

Expense if any of the recognition criteria are
not met.
Must capitalise if the recognition criteria are met (must be able to demonstrate future benefit). 

Amortise when commercial production begins.

Review annually to ensure criteria are still met – if not, expense.

Expense if any of the recognition criteria are not met.