Expenditure on development is expensed in SPLOCI unless what condition is met?

Expenditure on development is expensed in SPLOCI unless what condition is met?

• A. A It is possible to forecast revenue
• B. B The six criteria for capitalization are met
• C. C The asset is depreciable
• D. D It is acquired from a related party

Answer: (B)

Development costs are normally charged to the income statement as they’re incurred, but they can be capitalized as an intangible asset only if all six criteria for capitalization are satisfied. These criteria ensure the project will generate future economic benefits and that the costs can be measured reliably: technical feasibility to complete the asset, intention to complete and use or sell it, the ability to use or sell the asset, how it will generate future benefits, availability of adequate resources to complete, and reliable measurement of the expenditure. If all six are met, the expenditure is capitalized; otherwise it is expensed in the current period (SPLOCI). The other options don’t by themselves justify capitalization: forecasting revenue isn’t enough, depreciation status is a consequence of capitalization, and related-party origin doesn’t affect the recognition criteria.

Development costs are normally charged to the income statement as they’re incurred, but they can be capitalized as an intangible asset only if all six criteria for capitalization are satisfied. These criteria ensure the project will generate future economic benefits and that the costs can be measured reliably: technical feasibility to complete the asset, intention to complete and use or sell it, the ability to use or sell the asset, how it will generate future benefits, availability of adequate resources to complete, and reliable measurement of the expenditure. If all six are met, the expenditure is capitalized; otherwise it is expensed in the current period (SPLOCI). The other options don’t by themselves justify capitalization: forecasting revenue isn’t enough, depreciation status is a consequence of capitalization, and related-party origin doesn’t affect the recognition criteria.