So earlier stage of a project are research phase after some time they move to

So earlier stage of a project are research phase

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So earlier stage of a project are research phase, after some time they move to development phase. From an accounting perspective, expenditure on research is expensed when incurred (paragraph 54), and expenditure on development is capitalised as an intangible asset . It is obviously important to be able to distinguish one phase from the other.
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Paragraph 57 of IAS 38 is the key paragraph in this regard. It contains a list of criteria, all of which must be met in order for a development outlay to be capitalised. In order to capitalise development outlays, an entity must be able to demonstrate all of the following: - the technical feasibility of completing the intangible asset so that it will be available for use or sale; - the technical feasibility of completing the intangible asset so that it will be available for use or sale; - It’s ability to use or sell the intangible asset; - how the intangible asset will generate probable future economic benefits; - the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; - its ability to measure reliably the expenditure attributable to the intangible asset during its development. If the criteria are met, it will then be decided that the project is in the development stage. If the criteria in paragraph 57 are all met, IAS 38 requires the intangible asset to be measured at cost. This cost is not, however, the total cost relating to the project. The amount to be capitalised is the ‘sum of expenditure incurred from the date when the intangible asset first meets the recognition criteria in paragraphs 21, 22 and 57’ (paragraph 65). A major exclusion in an entity's ability to capitalise internally generated intangibles: Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall not be recognised as intangible assets. (Eventhough the criteria are met). 13.2.6 Explaining the non-recognition of internally generated assets . There are a number of problems associated with the treatment of internally generated assets versus that required for acquired intangibles. In particular, there are inconsistencies in the accounting for internally generated intangibles and intangibles acquired in a business combination. - The initial recognition of intangible assets. IAS 38 requires intangible assets to be initially recognised at cost. However, for assets acquired in a business combination, an intangible asset can be recognised at fair value. Internally generated intangibles cannot be recognised, even if the fair value can be reliably measured. For example, outlays on research cannot be recognised as an asset. However, if an entity acquires another entity that has inprocess research, an intangible asset can be recognised if the fair value can be measured reliably.
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  • Fall '17
  • tangible assets, Intangible asset

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