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As 08

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Published in: Business, Technology

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  • 1. ACCOUNTING STANDARD-8 ACCOUNTING FOR RESEARCH AND DEVELOPMENT.
  • 2. PURPOSE
    • Treatment of cost of research and development in the financial statements .
  • 3. RELEVANT DEFINITIONS
    • Research : Investigation undertaken with the hope of gaining new scientific or technical knowledge.
    • 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 .
  • 4. COST OF RESEARCH & DEVELOPMENT
    • INCLUDES :
    • Salaries, wages & personnel.
    • Cost of material and services consumed.
    • Buildings, equipements and facilities used for R & D.
    • Reasonable allocation of overhead costs.
    • Payment to outside bodies for R & D projects.
    • Amortization of patents relating to R & D.
  • 5. ACCOUNTING
    • They should be charged as an expense of the period in which they are incurred.
    • They can be treated as deferred revenue expenditure.
  • 6. DEFERRED REVENUE EXPENDITURE
    • Research and development costs of a project or product may be deferred to future periods, if product process:
    • It is clearly defined and the costs attributable can be separately identified.
    • It`s technical feasibility has been demonstrated.
    • Management will produce and market , or use it .
    • Research and development costs together with expected production, selling and administration costs are likely to be more than revenue.
    • Adequate resources exist, or are reasonably expected to be available to complete and market it.
  • 7. IMPORTANT POINTS
    • 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.
    • 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.
  • 8. DISCLOSURE REQUIREMENTS
    • 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.
    • Deferred research and development expenditure should be separately disclosed in the Balance Sheet under the head "Miscellaneous Expenditure. "