The development phase
The development phase is the application of research findings to a planned asset before commercial production or use. IAS 38 permits capitalisation of development expenditure, but only from the date the entity can demonstrate all six recognition criteria, and only for directly attributable costs incurred from that point onwardS1. Earlier expensed costs cannot be reinstated.
What the development phase is
IAS 38 gives examples of development: the design, construction and testing of pre-production prototypes; the design of tools involving new technology; and the design, construction and operation of a pilot that is not of a scale economical for commercial production IAS 38§59. The common thread is a specific, identified asset being built.
Capitalisation is conditional, not automatic
Reaching the development phase does not by itself permit capitalisation. An intangible arising from development is recognised only when the entity can demonstrate all six conditions in paragraph 57IAS 38§57. Until every condition is met, development spend continues to be expensed.
Criteria met → CAPITALISECriteria not yet met → EXPENSE
What enters the asset, and from when
Once the criteria are met, the cost of the asset comprises the directly attributable costs necessary to create, produce and prepare it to operate as intended, incurred from the date the criteria were first satisfiedIAS 38§66. Costs expensed in prior periods are not reinstated IAS 38§71. For a fine-tuning build, this typically means the qualifying engineering and compute from the point the build became a demonstrable, resourced, feasible asset.
- S1IAS 38 Intangible Assets, IFRS Foundation (IFRS). https://www.ifrs.org/issued-standards/list-of-standards/ias-38-intangible-assets/