ACCOUNTING STANDARD-8 ACCOUNTING FOR RESEARCH AND DEVELOPMENT.
PURPOSE <ul><li>Treatment of cost of research and development in the financial statements . </li></ul>
RELEVANT DEFINITIONS <ul><li>Research : Investigation undertaken with the hope of gaining new scientific or technical knowledge. </li></ul><ul><li>Development :Translation of research findings into a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services, prior to the commencement of commercial production . </li></ul>
COST OF RESEARCH & DEVELOPMENT <ul><li>INCLUDES : </li></ul><ul><li>Salaries, wages & personnel. </li></ul><ul><li>Cost of material and services consumed. </li></ul><ul><li>Buildings, equipements and facilities used for R & D. </li></ul><ul><li>Reasonable allocation of overhead costs. </li></ul><ul><li>Payment to outside bodies for R & D projects. </li></ul><ul><li>Amortization of patents relating to R & D. </li></ul>
ACCOUNTING <ul><li>They should be charged as an expense of the period in which they are incurred. </li></ul><ul><li>They can be treated as deferred revenue expenditure. </li></ul>
DEFERRED REVENUE EXPENDITURE <ul><li>Research and development costs of a project or product may be deferred to future periods, if product process: </li></ul><ul><li>It is clearly defined and the costs attributable can be separately identified. </li></ul><ul><li>It`s technical feasibility has been demonstrated. </li></ul><ul><li>Management will produce and market , or use it . </li></ul><ul><li>Research and development costs together with expected production, selling and administration costs are likely to be more than revenue. </li></ul><ul><li>Adequate resources exist, or are reasonably expected to be available to complete and market it. </li></ul>
IMPORTANT POINTS <ul><li>The deferred costs should be reviewed at the end of each accounting period and when they don’t fulfill the criterion the unamortised balance is charged as an expense. </li></ul><ul><li>Research and development costs once written off should not be reinstated even though the uncertainties that had led to their being written off no longer exist. </li></ul>
DISCLOSURE REQUIREMENTS <ul><li>The total of research and development costs, including the amortised portion of deferred costs, charged as expense should be disclosed in the profit and loss Account for the period. </li></ul><ul><li>Deferred research and development expenditure should be separately disclosed in the Balance Sheet under the head "Miscellaneous Expenditure. " </li></ul>
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