10-31-2007, 04:15 PM
Dear Shoaib,
I, before posting my views, thought about the implication of IAS 38. However, IAS 38 has laid down certain criterion parameters which must be met, if some expenditure has to be recognised as development cost.
Para 18 of IAS 38 states that the recognition of of an intangible asset requires an entity to demonstrate that the itme meets
(a) the definition of an intangible asset given in paragraph 8 to 17; and
(b) the recognition criteria given in paragraph 21 to 23.
I think a prototype is not an intangible
- in its definition as it is not an asset without physical substance; and
- in the nature of development as strictly speaking it is not an application of research findings at all for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use.
Further to above, as per paragraph 57, the intangible asset arising from development shall be recognised only if it meets the criteria given in its sub cluases (a) to (f), which, in my view the prototype does not meet.
Still, there could be a difference of opinion on this issue.
Hope to find some inputs from you as well.
Regards,
Kamran.
I, before posting my views, thought about the implication of IAS 38. However, IAS 38 has laid down certain criterion parameters which must be met, if some expenditure has to be recognised as development cost.
Para 18 of IAS 38 states that the recognition of of an intangible asset requires an entity to demonstrate that the itme meets
(a) the definition of an intangible asset given in paragraph 8 to 17; and
(b) the recognition criteria given in paragraph 21 to 23.
I think a prototype is not an intangible
- in its definition as it is not an asset without physical substance; and
- in the nature of development as strictly speaking it is not an application of research findings at all for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use.
Further to above, as per paragraph 57, the intangible asset arising from development shall be recognised only if it meets the criteria given in its sub cluases (a) to (f), which, in my view the prototype does not meet.
Still, there could be a difference of opinion on this issue.
Hope to find some inputs from you as well.
Regards,
Kamran.
