CFA Level I · CFA Level I Exam · Analysis of Long-Term Assets
Under IFRS, an entity incurs costs on a project to develop a new software product. Which of the following costs is most likely recognized as an intangible asset?
Development costs incurred after technical feasibility is shown and the entity intends to complete the asset are capitalized under IFRS. Research-phase costs and training costs are expensed as incurred because the recognition criteria for an intangible asset are not met.
- AResearch-phase costs for exploring alternatives
- BCosts of staff training on the finished product
- CDevelopment costs incurred after technical feasibility is demonstrated and the entity intends to complete the assetCorrect
Explanation
IFRS (IAS 38) requires research costs to be expensed. Development costs are capitalized only once criteria are met, including technical feasibility, intent and ability to complete and use or sell the asset, probable future benefits and reliable measurement. Training costs are expensed.
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