Question

In about 200 words (total), answer the following questions

In general, what is the required accounting treatment for research and development costs?

Answer 1

Answer:

Research is original & planned investigation undertaken with the prospect of gaining new scientific or technical knowledge & understanding.

Research is too important for the entity for their growth & to be competitive in the market. The research will be played a very crucial role in a few industries such as technologies, pharmaceuticals, etc.

Accounting treatment of Research:

Cost related to research is not capitalized & hence it should be treated as expense & transfer to profit & loss account.

Development is the application of research findings before the starting of commercial production or use. it is the activity that converts the result of research into a marketable product.

Accounting treatment of development:

An intangible asset arises from the development is capitalized only if the following condition is satisfied:

• Technical feasibility of completion is established
• there is an intention to complete
• Ability to use or sell the intangible assets
• How the intangible assets will generate future economic benefits
• adequate resources to complete the development
• Ability to measure reliably the expenditure

If the above condition is satisfied then only it is capitalized otherwise transfer to profit & loss statement.