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

Under IAS 38, which treatment applies to development expenditure that was previously expensed because the capitalisation criteria were not met, once the criteria are subsequently met?

Only expenditure incurred after the date the criteria are met is capitalised. IAS 38 forbids reinstating costs previously expensed as an asset, so earlier costs remain in profit or loss, and capitalisation begins from the point all the development criteria are first satisfied.

  1. AIt is reinstated as an asset by restating the earlier expense
  2. BOnly expenditure incurred from the date the criteria are met is capitalisedCorrect
  3. CAll expenditure on the project is capitalised retrospectively with a prior period adjustment
  4. DIt is capitalised only if the project is completed within the same financial year

Explanation

IAS 38 prohibits reinstating expenditure that was previously recognised as an expense. Capitalisation starts only from the date the recognition criteria are first met, and earlier costs stay in profit or loss. The other options involve retrospective restatement, which is not allowed.

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