When research and development costs are incurred in the expectation of future benefits but it is not possible,at the reporting date,to establish that it is probable that future economic benefits will eventuate,then:
A) the costs should be recognised as an asset
B) the costs should be recognised as expense together with estimated revenue
C) the costs should be recognised as expense prior to recognition of revenues
D) no action should be taken.

Question

Quizplus · Accepted Answer

When research and development costs are incurred in the expectation of future benefits but it is not possible to establish that it is probable that future economic benefits will eventuate, then the costs should be recognised as expense prior to recognition of revenues. This is in accordance with the principle of conservatism in accounting, where uncertainties are resolved in a manner that is least likely to overstate assets and income. Therefore, option C is the correct answer.

When Research and Development Costs Are Incurred in the Expectation