ACCA Applied Skills · Financial Reporting · Intangible assets
Zephyr Co incurred the following costs in the year: $120,000 on investigating new alloy compositions before any product was selected, and $80,000 on testing a chosen prototype after all IAS 38 development criteria had been met. What amount should be recognised as an intangible asset?
Only $80,000 is capitalised. Research costs are always expensed, whereas development costs are capitalised once all the IAS 38 criteria are demonstrated. The $120,000 spent on investigation is research and goes to profit or loss.
- A$200,000
- B$80,000Correct
- C$120,000
- D$0
Explanation
Research expenditure ($120,000) must be expensed as incurred. Only development costs incurred after the IAS 38 recognition criteria are met can be capitalised, which is $80,000. Capitalising both ($200,000) wrongly treats research as development.
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