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research and development costs


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The costs to a company of its research and development. Statement of Standard Accounting Practice 13, Accounting for Research and Development, distinguishes between pure research, applied research, and development.Pure research is original investigation undertaken to gain new scientific or technical knowledge and understanding, but without any specific applications.Applied research is original investigation undertaken to gain new scientific or technical knowledge with a specific practical aim or objective.Development is the use of scientific or technical knowledge to produce new or substantially improved materials, devices, products, processes, systems, or services prior to the commencement of commercial production.

Pure research is original investigation undertaken to gain new scientific or technical knowledge and understanding, but without any specific applications.

Applied research is original investigation undertaken to gain new scientific or technical knowledge with a specific practical aim or objective.

Development is the use of scientific or technical knowledge to produce new or substantially improved materials, devices, products, processes, systems, or services prior to the commencement of commercial production.

Under this Statement the costs of pure and applied research should be written off in the year in which they were incurred. In the case of development expenditure, if there is reasonable expectation that the product or process involved is likely to create future income, then the company has the option of capitalizing the development costs, thereby creating an intangible asset to be shown on the balance sheet. In all other circumstances development expenditure must be written off to the profit and loss account as soon as it is incurred.

The relevant International Accounting Standard is IAS 38, Accounting for Research and Development Activities.

Subjects: Accounting.


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