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Ebook Financial accounting and reporting international (11/E): Part 2

(BQ) Part 2 book "Financial accounting and reporting international" has contents: Construction contracts, earnings per share, cash flow statements, review of financial ratio analysis, trend analysis and multivariate analysis, an introduction to financial reporting on the Internet,. and other contents. | CHAPTER 17 R&D; goodwill and intangible assets; brands 17.1 Introduction In this chapter we consider the accounting treatments of the following: ● ● ● Research and development Goodwill and intangible assets Brands and consider intellectual property. 17.2 Accounting treatment for research and development Under IAS 38 Intangible Assets, the accounting treatment for research and development (R&D) differs depending on whether the expenditure relates to research expenditure or development expenditure. Broadly speaking, research expenditure must always be charged to the profit and loss account and development expenditure should be capitalised provided a strict set of criteria are met. In this section we will consider why there is pressure to write off R&D expenditure, the accounting requirements for R&D, and how development costs are defined. 17.2.1 Why is there a pressure to write off R&D expenditure? Many readers will think of R&D as an investment rather than as a cost. They may well perceive it as a strategic investment that is essential if we are to be competitive in world markets. This applies particularly to an advanced technical industry such as chemicals, where a sustained high level of R&D investment is required. The ‘2004 R&D Scoreboard’1 prepared for the DTI by Company Reporting analysed the results for figures published in annual reports up to 31 May 2004. It was reported that the UK had the next to lowest ratio of R&D to sales of any large industrialised country. According to the figures, average R&D-to-sales figures for individual countries were: 2004 2005 USA 4.9% 4.5% Germany 4.3% 4.1% Japan 4.2% 4.0% France 3.1% 2.6% UK 2.3% 2.0% R&D; goodwill and intangible assets; brands • 443 In the table of ‘Top 12 International Companies by R&D Expenditure’, only one UK company features. An extract, which includes a comparison with each of the top US, German and Japanese companies, is shown below: Position 1 3 4 11 Company Country Daimler .