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Accounting Principles, Concepts, and Standars for Financial Reporting

   

Added on  2020-01-21

6 Pages1454 Words104 Views
Financial Reporting1

TABLE OF CONTENTSINTRODUCTION................................................................................................................................3DISCUSSION.......................................................................................................................................3CONCLUSION....................................................................................................................................5REFERENCES.....................................................................................................................................62

INTRODUCTIONEvery organization measures their financial as well as the operational performance bymaking necessary accounts mainly includes a statement of comprehensive income, statement offinancial position and statement of cash flow. In order to maintain the record of all the monetarytransactions, companies are required to follow several accounting principles, concepts, andstandards. Global companies have to follow international or globalized standards such as IAS andIFRS to record each and every item in annual accounts, however, a domestic entrepreneur mayfollow domestic standards that are Generally Accepted Accounting Principles. The rules andregulations for reporting transactions as per both the standards differ from each other. SSAP 13superseded by FRS 102 prescribed accounting policies and principles in relation to research anddevelopment expenditures wheres at international level; IAS 38 is applied to the intangible assetscovers R&D cost as well. This report will present a critical evaluation of R&D treatment under boththe SSAP 13 and IAS 38.DISCUSSIONAccording to Council (2013), SSAP 13 categorized R&D cost into three elements that arepure research, applied research and development. Its recognizing criteria for both the pure andapplied research is that it must be disclosed in profit and loss account and written off from thebusiness yield. However, development cost should be recorded as an expenditures in the year whenit incurred unless five specific recognition criteria do not meet, whereas if such cost met all thecriteria then these development expenditure should be deferred by the way of capitalizing in balancesheet as an intangible asset and amortize it over the specified duration over which it is expected torecover reasonable return. However, on the contrary to this, as per the viewpoint of Choi (2011),IAS 38 stated that cost of research must be disclosed as an expense because it is not easy for thecompanies to identify reasonable return in the future period. On the contrary to this, expendituresincurred on development must be capitalized by reporting as intangible assets in SOFP and thenmust be amortized by meeting all the stringent recognition criteria. Thus, as per Wild, Creighton and Simmonds (2015), the key difference between both thedomestic GAAP principle foreign standard, is that SSAP 13 treat both the research and developmentcost as an expense, until and unless expenditures incurred on development met strict criteria. Thecriteria of recognition include that future benefits are the identifiable, commercially viable andtechnically feasible project, expected revenue outweighed total cost and incurred developmentexpenses can be identified separately. If these following criteria are fulfilled, then it gives the optionto either capitalize or write off against profit and loss account. In case, when an entity wishes to3

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