Question

1. Explain how research expenditure and development expenditure should be dealt with in preparing a company financial accounts.

Answer 1

As per AS-26

• Research Expenditure should be recognised as an expense when it is incurred.
• Development Expenditure should be recognised if, and only if, an enterprise can demonstrate all of the following:

a. The technical feasibility of completing the intangible asset so that it will be available for
use or sale.

b. Its intention to complete the intangible asset and use or sell it.

c. Its ability to use or sell the intangible asset.

d. How the intangible asset will generate probable future economic benefits. Among other
things, the enterprise should demonstrate the existence of a market for the output of the
intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness
of the intangible asset.

e. The availability of adequate technical, financial and other resources to complete the
development and to use or sell the intangible asset

f. Its ability to measure the expenditure attributable to the intangible asset during its development reliably.