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IFRS vs. US GAAP: R&D costs

IFRS Perspectives: Update on IFRS issues in the US

❶Under the revaluation model, revaluation increases are recognised in other comprehensive income and accumulated in the "revaluation surplus" within equity except to the extent that they reverse a revaluation decrease previously recognised in profit and loss. IAS 38 includes additional recognition criteria for internally generated intangible assets see below.

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Intangible assets meeting the relevant recognition criteria are initially measured at cost, subsequently measured at cost or using the revaluation model, and amortised on a systematic basis over their useful lives unless the asset has an indefinite useful life, in which case it is not amortised. IAS 38 was revised in March and applies to intangible assets acquired in business combinations occurring on or after 31 March , or otherwise to other intangible assets for annual periods beginning on or after 31 March The objective of IAS 38 is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another IFRS.

The Standard requires an entity to recognise an intangible asset if, and only if, certain criteria are met. The Standard also specifies how to measure the carrying amount of intangible assets and requires certain disclosures regarding intangible assets.

An asset is a resource that is controlled by the entity as a result of past events for example, purchase or self-creation and from which future economic benefits inflows of cash or other assets are expected.

IAS 38 requires an entity to recognise an intangible asset, whether purchased or self-created at cost if, and only if: This requirement applies whether an intangible asset is acquired externally or generated internally. IAS 38 includes additional recognition criteria for internally generated intangible assets see below.

The probability of future economic benefits must be based on reasonable and supportable assumptions about conditions that will exist over the life of the asset. If recognition criteria not met. If an intangible item does not meet both the definition of and the criteria for recognition as an intangible asset, IAS 38 requires the expenditure on this item to be recognised as an expense when it is incurred.

There is a presumption that the fair value and therefore the cost of an intangible asset acquired in a business combination can be measured reliably. The Standard also prohibits an entity from subsequently reinstating as an intangible asset, at a later date, an expenditure that was originally charged to expense.

If an entity cannot distinguish the research phase of an internal project to create an intangible asset from the development phase, the entity treats the expenditure for that project as if it were incurred in the research phase only.

A research and development project acquired in a business combination is recognised as an asset at cost, even if a component is research. Subsequent expenditure on that project is accounted for as any other research and development cost expensed except to the extent that the expenditure satisfies the criteria in IAS 38 for recognising such expenditure as an intangible asset. Brands, mastheads, publishing titles, customer lists and items similar in substance that are internally generated should not be recognised as assets.

For this purpose, 'when incurred' means when the entity receives the related goods or services. If the entity has made a prepayment for the above items, that prepayment is recognised as an asset until the entity receives the related goods or services. An entity must choose either the cost model or the revaluation model for each class of intangible asset. After initial recognition intangible assets should be carried at cost less accumulated amortisation and impairment losses.

Intangible assets may be carried at a revalued amount based on fair value less any subsequent amortisation and impairment losses only if fair value can be determined by reference to an active market. Under the revaluation model, revaluation increases are recognised in other comprehensive income and accumulated in the "revaluation surplus" within equity except to the extent that they reverse a revaluation decrease previously recognised in profit and loss.

If the revalued intangible has a finite life and is, therefore, being amortised see below the revalued amount is amortised. The cost less residual value of an intangible asset with a finite useful life should be amortised on a systematic basis over that life: Expected future reductions in selling prices could be indicative of a higher rate of consumption of the future economic benefits embodied in an asset.

The standard contains a rebuttable presumption that a revenue-based amortisation method for intangible assets is inappropriate. However, there are limited circumstances when the presumption can be overcome:. The guidance on expected future reductions in selling prices and the clarification regarding the revenue-based depreciation method were introduced by Clarification of Acceptable Methods of Depreciation and Amortisation , which applies to annual periods beginning on or after 1 January Therefore market research and testing—which are essentially about selling—are defined as marketing costs, which are expensed in the same period as the activities took place.

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The accounting for research and development involves those activities that create or improve products or processes. The core accounting rule in this area is that expenditures be charged to expense as incurred. Examples of activities typically considered to fall within the research and developme.

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Research and development (commonly shorten as R&D) activities are increased and increased. Equally, research and development related costs are a growing portion of the expenses recognized by companies. Given their growing size, accountants are increasingly concerned with their impact on the financial statements. It’s been years, research and development .

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Accounting for the costs of research and development activities conducted for others under a contractual arrangement is a part of accounting for contracts in general and is beyond the scope of this Statement. "Accounting for Research and Development Costs" General rule for research and development costs Research and development costs are--> charged to expense when incurred--> because future economic benefits are uncertain Research and development (R&D) costs 1. tangible assets.

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Research and Development Costs may may be discouraged by accounting rules. The accounting for research and development costs under IFRS can be significantly more complex than under US GAAP.