ACCA Strategic Business Reporting (SBR) Practice Exam

Which costs are expensed in the profit and loss account under IAS 38?

1. Development costs

2. Research costs

3. Acquisition costs of intangible assets

4. Legal costs for patent registration

The correct answer is: Research costs

Under IAS 38, research costs are required to be expensed in the profit and loss account as they are incurred. This aligns with the standard’s guidance that research activities are aimed at obtaining new scientific or technical knowledge or understanding. Since the future economic benefits arising from research activities are uncertain and cannot be reliably measured, these costs do not meet the criteria for capitalization as an intangible asset. On the other hand, development costs can sometimes be capitalized if they meet specific criteria outlined in IAS 38, indicating that they have a clear path to future economic benefits. Acquisition costs of intangible assets and legal costs for patent registration can also be capitalized because they relate to obtaining or preparing an intangible asset for use, which contributes to future economic benefits.