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Accounting Standards for R&D Costs




Accounting Standards for R&D Costs | Bestar
Accounting Standards for R&D Costs | Bestar


Accounting Standards for R&D Costs


Accounting standards for R&D costs in Singapore:


Standards Reference:


Singapore adopts FRS (Financial Reporting Standards) issued by the Accounting Standards Board (ASB). The relevant standard for intangible assets, including R&D costs, is FRS 38 Intangible Assets.


Key Points on R&D Costs under FRS 38:


  • Research Costs: FRS 38 generally prohibits capitalizing research costs. They are considered expenses incurred as they are unlikely to meet the criteria for recognizing an intangible asset.

  • Development Costs: There's an option to capitalize development costs if they meet specific criteria outlined in FRS 38. These criteria ensure the development project is likely to generate probable future economic benefits.

  • Amoritization: If development costs are capitalized, they need to be amortized over their useful life. Amortization begins when the asset is available for use.

  • Regular Reviews: The recognition and carrying value of capitalized development costs should be reviewed regularly to ensure they continue to meet the criteria for recognition.


Capitalization of Development Costs


In Singapore, the capitalization of development costs is governed by FRS 38 Intangible Assets, issued by the Accounting Standards Board (ASB). Here's a breakdown of the key points to consider:


When Can Development Costs Be Capitalized?


Development costs can only be capitalized if they meet all the following criteria outlined in FRS 38:


  • Identifiable: The asset must be identifiable, meaning it can be separated from the business or arise from contractual or legal rights.

  • Future Economic Benefits: It's probable that the asset will generate future economic benefits for the company. This could include increased revenue, cost savings, or improved efficiency.

  • Measurable Cost: The cost of the asset can be reliably measured. This includes all development expenditures directly attributable to the asset.

  • Use or Sale Plan: There's a plan for the asset to be used or sold. The company intends to use it or get future economic benefits through its sale or disposal.


Benefits of Capitalization:


  • Spreads Costs: Capitalization allows spreading the development cost over the asset's useful life, reducing the impact on current year's profitability.

  • Matches Expense with Benefit: Capitalized costs are recognized as an asset, better reflecting the long-term benefits the development brings.

  • Tax Advantages: Singapore offers tax deductions for capitalized R&D costs, potentially leading to tax savings.


Things to Consider:


  • Uncertainty: Development projects often have inherent uncertainty. Capitalization might not be suitable if the project's success is highly doubtful.

  • Disclosure Requirements: Companies that capitalize development costs need to disclose the amount capitalized and the amortization method used.


Additional Resources:


  • ASB Website: The ASB website provides the full text of FRS 38 (This is a technical document)


Seeking Professional Advice:


For complex R&D accounting decisions, consulting with a qualified accountant familiar with Singaporean accounting standards is highly recommended. They can assess the specific details of your development project and advise on the most appropriate treatment of your R&D costs according to FRS 38.


How Bestar can Help


Here's how Bestar can help you with R&D costs and FRS 38 in Singapore:


Understanding FRS 38:


  • Bestar can explain the intricacies of FRS 38 in a clear and practical way. We can help you understand the specific criteria for capitalizing development costs and the accounting treatment involved.


Applying the Standard to Your Situation:


  • We can assess the nature of your R&D project and its associated costs. Based on this analysis, we can advise you on whether capitalization is appropriate under FRS 38.


Documentation and Recordkeeping:


  • Proper documentation is crucial for supporting the capitalization of development costs. Bestar can guide you on what records to maintain and ensure they meet FRS 38 requirements.


Amortization Schedule:


  • If you capitalize development costs, they need to be amortized over their useful life. Bestar can help you determine the appropriate amortization method and create a proper amortization schedule.


Tax Implications:


  • Singapore offers tax deductions for R&D expenses, including capitalized costs. Bestar can advise on the potential tax benefits of capitalizing your R&D costs and ensure you meet the requirements for claiming these deductions.


Ongoing Support:


  • Accounting standards and tax regulations can change. Bestar can provide ongoing support to ensure your R&D accounting practices stay compliant with the latest updates.


By working with a qualified accounting firm like Bestar, you can gain the necessary guidance to navigate the complexities of FRS 38 and ensure your R&D costs are accounted for appropriately following Singaporean accounting standards.




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