Accounting for Research and Development Expenditure

Business Simulation Tasks
Task 3: Accounting for Research and Development Expenditure
The Board of Directors is concerned about the effect on reported profits of treating research and development (R&D) expenditure as an expense in the year in which it is incurred and the Board has asked you to investigate whether it is possible under International Financial Reporting Standards (IFRS) for some or all of such expenditure to be treated as a non-current asset instead.
Required:
Prepare a briefing for the Board of Directors on the accounting treatment of R&D expenditure which specifically addresses the following questions:
a) Briefly explain, with examples, what is meant by an ‘intangible asset’.

b) Briefly explain the IFRS rules for the accounting treatment of R&D expenditure.

c) In line with IFRS rules, prepare a brief justification for treating your company’s proposed investment in R&D in 2022 as an ‘intangible development asset’, identifying what information would be needed to support such a case and also consider how this asset should be amortised. (Note: if your company is not planning to invest in any R&D projects in 2022, choose any one of the R&D projects available to answer this requirement for illustrative purposes).

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