A company spends £60,000 on research into a new product and a further £90,000 on development costs. Of the development spending, £25,000 was incurred before the IAS 38 recognition criteria were met, and the rest after they were met. How much is expensed to the statement of profit or loss?

Answer and explanation

Correct answer: C. £85,000

  1. Step 1: Research costs are always expensed under IAS 38: £60,000.
  2. Step 2: Development costs are capitalised only from the date the criteria are met, so the £25,000 spent earlier is expensed.
  3. Step 3: Expensed = £60,000 + £25,000 = £85,000; capitalised = £90,000 − £25,000 = £65,000.
Answer
£85,000.
Why not the others: £60,000: This expenses the research only and forgets the development spending incurred before the criteria were met. £150,000: This expenses all the research and development, although development spending after the criteria are met is capitalised. £25,000: This expenses only the early development costs and omits the research costs, which are never capitalised.

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