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I doubt whether to expense out all costs or not ??
In second quarter of 20X6 company carried out research of potential demand for modified version of company’s products. Moreover company prepared analysis of different production processes as well as evaluation of potential suppliers, who would be able to deliver materials necessary to launch new products (all expenditures paid in cash):
Year 20X6
– expenditures on market research 190,000
– expenditures on potential production technology analysis 95,000
– expenditures on potential suppliers analysis 40,000This doesn’t sound like it meets the criteria for capitalisation under IAS 38. In order to be capitalised rather than expensed the costs must be development costs rather than research costs, ie they must be incurred developing a viable, profitable product rather than just testing the waters. It must pass several tests, including:
– Management must be committed to production. There is no evidence of this from the information, it seems management are just researching whether there is demand and potential production methods
– The product must be estimated to be profitable. Again there is no evidence of this in the information given
– The product must be technically feasible. Again there is no evidence of this in the information given
– Resources must be available to complete the project. Again there is no evidence of this in the information givenTherefore I would say all costs should be expensed.
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