R&D Costs

Primble

Hi

Can someone please explain the basic principles of R&D costs so i can waffle if a question comes up

Marga

what are r&d?

Rinske

Research and development costs.

research is an expense to the income statement, while development, if tested against a number of options, can be capitalised.

The differences:
Research
Is the investigation undertaken to gain new knowledge and understanding.
- Expenditure is an expense to the income statement when incurred.

Development
Is the application of research findings or other knowledge to produce new or substantially improved products.
Criteria:
- the company should be able to use or sell once finished.
- the company should have the intention to complete it.
- there should be a reliable measurement of costs.
- it should be technically feasible
- there should be adequate resources allocated for completion
- there should be probable future benefits for the company.
If yes to the above, it can be capitalised as an intangible asset.
If no to the above, write the expenses off in the income statement.

That's what my notes are on it for CIMA, before it starts on about amortisation, revaluations and disclosures. I can dig out the DFS notes if you like, but I remember them being basically the same.

Does that help?

Primble

thats perfect thanks!