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Dear Tutor,
I am quite confused between intangible asset and prepayment expenses,especially long-term prepayment (say, rental paid in arrears 2 years). Is there any criteria to distinguish these 2 types of assets?
To be more specific, can research expenditure are recognized as prepayment expenses? I am thinking that if some expenses not satisfying to become intangible assets, entity may treat them as prepayment expenses and allocate to several reporting periods. If so, the effect to P/L is not different to the amortization of intangible assets.
Hi,
Research expenditure is expensed as incurred, it is not capitalised.
If any amounts are prepaid then they are treated as a prepayment using the accruals concept.
Only once development commences is the expenditure capitalised and the key to note is that it is not amortised until it is available for use. It may therefore not be amortised until a point in the future.
Thanks
Dear Mr Tutor,
So, if research expenses incurred in year N then all this expenses went to P/L of year N? Can the accountants treat it as prepayment and allocate it to several years?
Moreover, is prepayment qualified as an intangible asset? It may be a basic question but actually I did not see much differences between prepayment and normal intangible assets (patents, brands, software…). They are both recognized assets, both allocated/amortised to P/L each year. It means that the impact of them on SoFP and P/L is very similar. The only difference I see may be intangible asset in some cases are able to be sold whereas prepayment likely not.
Hi,
It wouldn’t be allocated to several years, it would just apply to some of the following months.
An intangible is totally different to a prepayment. A prepayment is an accounting adjustment to apply the accruals concept, where as an intangible is an identifiable, non-monetary asset without physical substance.
Thanks
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