Under IAS 38 Intangible Assets, how should a company account for expenditure on a project to discover new scientific knowledge (research), and for later expenditure on developing a new product that meets all the recognition criteria (development)?

Correct answer: B) Research is expensed; development is capitalised as an intangible asset

Explanation

IAS 38 requires all expenditure in the research phase to be recognised as an expense when incurred, because future economic benefits cannot be demonstrated. Development expenditure must be capitalised as an intangible asset once all the recognition criteria are met, such as technical feasibility, intention and ability to complete and use or sell the asset, probable future economic benefits and reliable measurement.