BioHealth Pharma has spent $500,000 researching a new vaccine and a further $800,000 on the development phase. The development phase meets all the criteria for capitalization under IAS 38 Intangible Assets. How should these costs be treated in the financial statements?

IAS 38 Intangible Assets states that all research costs must be recognized as an expense when incurred because an entity cannot demonstrate that an intangible asset exists that will generate probable future economic benefits. Development costs, however, must be capitalized as an intangible asset if the entity can demonstrate all the capitalization criteria (often remembered by the mnemonic PIRATE).