ACCOUNTING FOR RESEARCH AND DEVELOPMENT. ACCOUNTING STANDARD-8 ACCOUNTING FOR RESEARCH AND DEVELOPMENT.

PURPOSE Treatment of cost of research and development in the financial statements.

RELEVANT DEFINITIONS Research :Investigation undertaken with the hope of gaining new scientific or technical knowledge. Development :Translation of research findings into a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services, prior to the commencement of commercial production.

COST OF RESEARCH & DEVELOPMENT INCLUDES: Salaries, wages & personnel. Cost of material and services consumed. Buildings, equipements and facilities used for R & D. Reasonable allocation of overhead costs. Payment to outside bodies for R & D projects. Amortization of patents relating to R & D.

ACCOUNTING They should be charged as an expense of the period in which they are incurred. They can be treated as deferred revenue expenditure.

DEFERRED REVENUE EXPENDITURE Research and development costs of a project or product may be deferred to future periods, if product process: It is clearly defined and the costs attributable can be separately identified. It`s technical feasibility has been demonstrated. Management will produce and market, or use it. Research and development costs together with expected production, selling and administration costs are likely to be more than revenue. Adequate resources exist, or are reasonably expected to be available to complete and market it.

IMPORTANT POINTS The deferred costs should be reviewed at the end of each accounting period and when they don’t fulfill the criterion the unamortised balance is charged as an expense. Research and development costs once written off should not be reinstated even though the uncertainties that had led to their being written off no longer exist.

DISCLOSURE REQUIREMENTS The total of research and development costs, including the amortised portion of deferred costs, charged as expense should be disclosed in the profit and loss Account for the period. Deferred research and development expenditure should be separately disclosed in the Balance Sheet under the head "Miscellaneous Expenditure."