Some companies use R&D to update existing products or conduct quality checks in which a business evaluates a product to ensure that it is still adequate and discusses any improvements. If the improvements are cost-effective, they will be implemented during the development phase. The amortizable life will differ from asset to asset and reflects the economic life of the various products.

Many businesses in the technology, healthcare, consumer discretionary, energy, and industrial sectors experience this problem. Even though R&D can be an intangible asset in the UK, accounting for R&D is governed by its own accounting standard – SSAP 13, Accounting for Research and Development. Equally, the argument exists that it may be impossible to predict whether or not a project will give rise to future income. As a result, both the UK and International Accounting Standards provide accountants with more information in order to clarify the situation.

What Activities Are Considered Research and Development Under GAAP?

R&D amortization for a mobile phone company, however, should be amortized much faster (a smaller number of years) since new phones tend to emerge much more quickly and, thus, come with shorter shelf lives. If any of the recognition criteria are not met then the expenditure must be charged to the income statement as incurred. Note that if the recognition criteria have been met, capitalisation must take accounting for research and development place. Expenditures incurred in the development phase of a project are capitalized from the point in time that the company is able to demonstrate all of the following. Research means trying out different possibilities and checking their outcomes. Examples of research expenditure are activities aimed at obtaining new knowledge, and the search for new materials, devices, products and processes.

It is the combination of a predominant mindset, actions (both big and small) that we all commit to every day, and the underlying processes, programs and systems supporting how work gets done. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory. You can set the default content filter to expand search across territories.

How Does GAAP Require Research & Development Costs to Be Recorded?

Completing the challenge below proves you are a human and gives you temporary access. Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more.