I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

the R&D account at the reporting date. 

There are two possibilities. 

(a) 

The debit balance may be classified as an expense and transferred to the statement of profit or 

loss. This is referred to as 'writing off' the expenditure. The argument here is that it is an expense 

just like rent or wages and its accounting treatment should be the same. 

(b) 

The debit balance may be classified as an asset and included in the statement of financial 

position. This is referred to as 'capitalising' or 'carrying forward' or 'deferring' the expenditure. This 

argument is based on the accrual assumption. The costs should be carried forward and written 

off to reflect the pattern of the asset's economic benefits consumed by the entity.  

So the main question surrounding research and development (R&D) costs is whether they should be 

treated as an expense or capitalised as an asset. This question is dealt with in IAS 38 Intangible Assets.  

2.2 Definitions 

The following definitions are given by IAS 38. 

 'An