CERTYNEX IFRS ACADEMY

The software publisher Quorlis is developing a recommendation engine using an iterative method: each work cycle mixes exploratory work and applied programming, and the time spent is not split between the two. The year's expenditure amounts to 420,000. The finance director proposes capitalising 40% of this amount, the portion he estimates relates to development. What do you recommend?

Accept: a reasonable estimate of the development portion is enough to capitalise 168,000.

Recognise the 420,000 as an expense, as all the expenditure falls under the research phase.

Capitalise the 420,000, as the engine is intended to be used by the entity in its products.

Capitalise 40% of the amount and recognise a provision for risks on the remaining 60%.