CFA Level I · CFA Level I Exam · Analysis of Long-Term Assets
A company that reports under IFRS incurs research and development costs on a new product. The research phase costs 400,000 and, after technical feasibility and the intent and ability to complete are demonstrated, the development phase costs 600,000. All other recognition criteria are met. The amount most likely recognized as an intangible asset is:
The amount capitalized is 600,000. IFRS requires research costs to be expensed, while development costs are capitalized once the recognition criteria, including technical feasibility, are satisfied. Therefore only the development phase spending becomes an intangible asset.
- A0
- B600,000Correct
- C1,000,000
Explanation
Research costs of 400,000 are always expensed under IFRS. Development costs of 600,000 are capitalized once the criteria are met. Capitalizing all 1,000,000 ignores the research expensing rule.
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