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Its just a general accounting question though..
Investments on product development cant be capitalised until they have completed final development stage and ready to produce income.
Suppose if the product development will take 3 yrs to complete final development stage ..now for the first two years ..expenses are written off in SOPL. In 3rd year the expenses will be capitalised.How much expenses will be capitalised in 3rd year? Only those incurred in 3rd year or all accumulated expenses from 1 2 & 3 year…..if all accumulated ..then what about FS of 1st and 2nd year which already contains expenses incurred ? What is the treatment ?
Costs of development can only be capitalised when all the asset recognition criteria are met (technical feasibility, intention to complete and use/sell, ability to use/sell, resources to complete and use/sell, etc). Up until this point, all development cost must be expensed (as for research). Once expensed, they are never subsequently capitalised (i.e. retrospectively).
Then sir what about products that require more than one year for development…then their development costs can never be accurately capitalised according to this standard…
The criteria for recognition of an intangible asset (assumed knowledge of FA (F3)) has nothing to do with periods of time. It depends on what it is that is being developed. Something might take years to develop but the criteria could all be met at a relatively early stage – allowing most of the costs to be capitalised.
But if, for example, the technical feasibility or existence of a market for the output of the development can only be demonstrated towards the end of the development phase, most of the costs will be expensed.
What the standard is seeking to ensure is that costs aren’t capitalised without expectation of future benefits to recoup the cost carried as an asset.
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