Past expenses not recognised as an asset

Learning objectives

• Explain the prohibition on recognising as part of the cost of an asset expenditure previously recognised as an expense.L2
• Calculate the cost of a development project without reinstating the expenditure of prior periods.L2, L3

Normative references

• IAS 38 §71Expenditure initially recognised as an expense is not recognised as part of the cost of an intangible asset at a later date.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

16 questions

• Last year, a video game publisher expensed {prior_year_costs} of development expenditure on a new graphics engine, as the capitalisation criteria were not met. This year, the criteria are met for the first time on 1 April. The project cost {pre_criteria_current_year} from January to March, then {post_criteria_costs} from April to December. Management wishes to reinstate all the project expenditure as an asset. What is the cost of the asset at the year-end?L3
• A controller reviews the year-end entries for a development project whose capitalisation criteria were first met during the year. Which of the proposed entries is an error?L2
• True or false? The initial cost of an internally generated intangible asset includes the expenditure incurred before the date on which it first met the recognition criteria.L2
• Quenvia is developing a pricing tool internally. The expenditure incurred from 1 January to 31 March 20X1, amounting to 30,000, was expensed. The project first meets all the recognition criteria on 1 April 20X1; the directly attributable expenditure incurred afterwards until the tool goes live amounts to 75,000. What is the initial cost of the asset?L2
• The Cylvie laboratory has for two years been running an internal project whose exploratory and applied work is so intertwined that it cannot distinguish the two phases. Which of the following consequences are correct?L3
• In 20X1, Melvane could not distinguish the phases of its project for a new industrial adhesive and recognised 250,000 as an expense. In early 20X2, it sets up tracking that clearly separates the two phases; on 1 March 20X2, it demonstrates for the first time all the recognition criteria of the development phase. The technical director asks for the 250,000 of 20X1 to be reclassified as an asset. Which answer is correct?L3
• Ivrel is designing a new recycling process. Within the same teams and with no separate tracking, the engineers alternate between tests aimed at understanding the chemical reactions and fine-tuning the industrial pilot. The management controller proposes capitalising the expenditure incurred after the first successful test, which he estimates at 55% of the year's total. Write a memo justifying the classification of the year's expenditure.L3
• True or false? When a project moves from the research phase to the development phase, research expenditure expensed in previous years may be reinstated in the cost of the intangible asset.L2
• Vernat is developing scheduling software intended for sale. At the end of 20X1, the prototype is working, financing is secured, costs are tracked by project and a market study is favourable. However, a competitor has just announced a similar product and the board of directors has not yet decided whether to continue or abandon the project; no decision is expected before the next strategy committee. The project manager wants to capitalise the expenditure of the second half-year, arguing that five of the six criteria are met. Write a position memo.L4
• True or false? Development expenditure recognised as an expense in 20X1, because the criteria were not met, may be added in 20X2 to the cost of the intangible asset when the project finally meets those criteria.L2
• Taliora recognised as an expense in 20X1 250,000 of development expenditure on a sensor, as the criteria were not yet met. On 1 February 20X2, the project meets all the criteria for the first time. How is this 250,000 treated in the 20X2 financial statements?L2
• Keldar is developing marine navigation software. In 20X1, as the criteria were not met, it recognised {prior_year_expensed} of development expenditure as an expense. The criteria have been met since 1 January 20X2; in 20X2, it incurs {current_year_costs} of costs directly attributable to the software and {launch_advertising} of advertising for its launch. Management wishes to recognise as an asset all the project expenditure since its inception. What is the cost of the intangible asset at 31 December 20X2?L2
• Velmora is designing software for medical devices. In 20X1, it recognised as an expense {research_20x1} of research and {development_20x1} of development. In 20X2, the project first meets the recognition criteria on 1 June: it cost {pre_criteria_20x2} from January to May, then {post_criteria_20x2} of directly attributable costs from June to December. In December 20X2, Velmora also incurs {user_training} to train hospital users. The CFO proposes to recognise as an asset all project expenditure since 20X1. What is the cost of the intangible asset at 31 December 20X2?L3
• Anselm is developing a machine translation tool for which the recognition criteria are first met on 1 May 20X3. At 31 December 20X3, the accountant prepares the entries below. Which one is wrong?L2
• The cost worksheet for a recycling process developed by Ferrance, prepared for the 20X4 year end, contains the lines below. Which one contains an error?L3
• In 20X1, Ardoval expensed 50,000 of development expenditure on a medical device. In 20X2, it incurs 35,000 of research on another device and 20,000 of development on the medical device before the capitalisation criteria are demonstrated in March 20X2. Management proposes to reinstate the 50,000 of 20X1 as an asset. What amount of R&D recognised as an expense does Ardoval disclose for 20X2?L2