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Businesses have several costs and one among them is development cost. They are material cost for...

Businesses have several costs and one among them is development cost. They are material cost for companies which are either expensed or capitalised as an asset. Required: Discuss the conceptual issues involved and the definition of an asset that may be applied in determining whether development expenditure should be treated as an expense or an asset.

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Conceptual Issues:

Development costs are generally long term in nature. If the cost of development incurred are recurring in nature then it will be treated as expense but if it is non recurring in nature and for future benefit and also increase the value of the business then it will treated as an assets. It is capitalized as an asset (intangible asset) in the Balance Sheet of the Company.

Assets:

Asset is a source that an individual, corporation owns or controls with the expectation that it will provide a future benefit.

Assets are shown on a company's Balance Sheet and assets are bought or created to increase a firm's value or benefit the firm's operations.

Developmental costs are for the future benefits of a company. It will increase the value of the Business.

Therefore Developmental costs are treated as an intangible assets.

An intangible asset is an asset that is not physical in nature. Goodwill, intellectual properties are all intangible assets. A company's brand name is considered as an indefinite intangible asset because it stays with the company for as long as the company continues operations.

Similarly development expenses will also stays with the company for a long peroid because it improves the value of a business.

So, the development expenses shou;d be treated as an asset in the Balance Sheet of a company.

ekkarill92 answered 1 year ago
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