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10 August, 13:29

Suppose a company spends $100,000 on research and development in 2021. As a result of the products developed, additional revenue is generated over the next five years totaling $600,000. When is the cost of the research and development in 2021 recognized as an expense?

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  1. 10 August, 16:49
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    Assuming that Research and Development phase can't be identified and their cost can't be measured and future economic benefits are also not probable so All the cost of $100,000 will be recognized as Expense and charged to Profit and Loss statement.

    Explanation:

    According to International Accounting Standard IAS 38 Research and development expense will only be capitalized it they met the specified criteria of the standard.

    Which is different for research and development. If you can identify research and development phase separately then

    For research

    following both must be satisfy for capitalization of cost incurred

    1. Future economic benefits are probable

    2. Cost can be measured reliably

    For Development

    (*Following Criteria is copied from the Accounting standard IAS 38)

    1. the technical feasibility of completing the intangible asset (so that it will be available for use or sale)

    2. intention to complete and use or sell the asset

    3. ability to use or sell the asset

    4. existence of a market or, if to be used internally, the usefulness of the asset

    5. availability of adequate technical, financial, and other resources to complete the asset

    6. the cost of the asset can be measured reliably.

    It any of these do not complied the the reasearch and development cost of $100,000 will be recognized as expense.
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