ExpertMedium2 marksMultiple Choice
ACCA · Question 06 · Recording Transactions: Intangible Assets
Section A
BioGenetics PLC is developing a new synthetic enzyme. Which TWO of the following criteria MUST be met for the development costs to be capitalized as an intangible asset under IAS 38?
Section A
BioGenetics PLC is developing a new synthetic enzyme. Which TWO of the following criteria MUST be met for the development costs to be capitalized as an intangible asset under IAS 38?
Answer options:
A.
The technical feasibility of completing the intangible asset so that it will be available for use or sale.
B.
The project has been approved by the external auditors.
C.
The ability to measure reliably the expenditure attributable to the intangible asset during its development.
D.
The asset has a guaranteed physical form upon completion.
How to approach this question
Recall the PIRATE criteria for capitalizing development costs: Probable future economic benefits, Intention to complete, Reliable measurement of costs, Adequate resources, Technical feasibility, Expected to be profitable/used.
Full Answer
Under IAS 38, development costs can only be capitalized if the entity can demonstrate all of the PIRATE criteria: Probable future economic benefits, Intention to complete and use/sell, Reliable measurement of expenditure, Adequate technical/financial resources, Technical feasibility, and ability to use/sell the asset.
Common mistakes
Selecting options related to physical substance or external auditor approval.
Practice the full ACCA FA — Financial Accounting Practice Exam 6
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