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ACCA Applied Knowledge · Financial Accounting · Intangible non-current assets and amortisation

Under IAS 38 Intangible Assets, how should expenditure incurred during the research phase of an internal project be treated?

Research phase expenditure must be recognised as an expense in profit or loss when incurred. At that stage the entity cannot demonstrate that future economic benefits will flow from the project, so IAS 38 prohibits capitalising it.

  1. ACapitalised as an intangible asset and amortised over its useful life
  2. BRecognised as an expense in profit or loss when incurredCorrect
  3. CCarried forward as a deferred asset until the project is completed
  4. DCapitalised only if the entity expects the project to be profitable

Explanation

IAS 38 requires research expenditure to be expensed when incurred because future economic benefits cannot be demonstrated at that stage. Capitalising it as an asset, whether immediately or on expected profitability, is not permitted for the research phase.

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