Question

Explain briefly your treatment of the research and development expenditure. In doing so, support your treatment with reference to relevant accounting guidance/concepts covered in the subject to date. If you feel that classifying this item is difficult, identify any additional information you feel would assist you to be absolutely certain about how to classify the expenditure in the financial reports.

Answer 1

The yearly expenditure made on “Research and Development expenditure” is treated as expenses in the year of expenses due to accrual principle. The expenditure in each and every research stage should be treated as expenses and charged to Income Statement as and when it is incurred.

The expenses incurred on development phase of the assets, the expenditure is treated as the Capital expenditure and taken to the Balance Sheet as and when it is incurred. Like all expenditure on the development of the Plant and machinery should be accumulated and charged to/Write-off to the Income Statement according to the usage of the Plant and machinery.