MASB4 Research and Development Costs pg1

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MASB Approved Accounting Standards for Private Entities

LEMBAGA PIAWAIAN PERAKAUNAN MALAYSIA

MALAYSIAN ACCOUNTING STANDARDS BOARD

Research and Development Costs

The standards, which have been set in bold type, should be read in the context of the background material and implementation guidance in this Standard, and in the context of the Foreword to MASB Standards. MASB Standards are not intended to apply to immaterial items.

Objective
The objective of this Standard is to prescribe the accounting treatment for research and development costs. The primary issue in accounting for the costs of research and development activities is whether such costs should be recognised as an asset or as an expense. This Standard uses the recognition criteria established in the MASB's A Proposed Framework for the Preparation and Presentation of Financial Statements to determine when research and development costs should be recognised as an expense and when they should be recognised as an asset. It also provides practical guidance on the application of these criteria.

Scope
1. This Standard should be applied in accounting for research and development costs. 2. This Standard supersedes MASB Approved Accounting Standard IAS 9, Accounting for Research and Development Activities and International Accounting Standard IAS 9 (revised), Research and Development Costs, issued by the Malaysian professional accountancy bodies. 3. This Standard does not apply to the costs of exploration and development of oil, gas and mineral deposits in the extractive industries. However, this Standard does apply to the costs of other research and development activities in such industries.

Research and Development Activities Under Contract for Others

1. An enterprise may carry out research and development activities under contract for another enterprise. When the substance of the arrangement is such that the risks and benefits associated with the research and development activities are, or will be, transferred to the other enterprise, the enterprise conducting the research and development activities accounts for the costs in accordance with MASB 2, Inventories, or MASB 7, Construction Contracts. The recipient of the risks and benefits accounts for its costs in accordance with this Standard. 2. When the substance of the arrangement with the other enterprise is such that the risks and benefits associated with the research and development activities are not, or will not be, transferred to others, the enterprise conducting the research and development activities accounts for the costs in accordance with this Standard. Factors which indicate that the risks and benefits of research and development activities are not transferred to others include: 1. the enterprise conducting the research and development activities is contractually obliged to repay any of the funds provided by the other enterprise, regardless of the outcome of the research and development activities; and 2. even though the contract does not require the enterprise conducting the research and development activities to repay any of the funds provided by the other enterprise, repayment could be required at the option of the other enterprise or the surrounding conditions indicate that repayment is probable.

Definitions
1. The following terms are used in this Standard with the meanings specified: Research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding. Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems, or services prior to the commencement of commercial production or use. 2. The nature of activities encompassed by research and development is generally understood. However, it may be difficult in practice to identify those activities in particular instances. While the above definitions assist enterprises in this regard, the identification of research and development activities often depends on the type of business, how the business is organised and the type of projects undertaken. 3. Examples of activities typically included in research are; 1. activities aimed at obtaining new knowledge; 2. the search for applications of research findings or other knowledge; 3. the search for product or process alternatives; and 4. the formulation and design of possible new or improved product or process alternatives. 4. Examples of activities typically included in development are: 1. the evaluation of product or process alternatives; 2. the design, construction and testing of pre-production prototypes and models; 3. the design of tools, jigs, moulds and dies involving new technology; 4. the design, construction and operation of a pilot plant that is not of a scale economically feasible for commercial production; and

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5. the assessment of the commercial viability of a product or process prior to commencement of commercial production or use. 5. Examples of activities that may be closely associated with research and development activities but are neither research nor development are: 1. engineering follow-through in an early phase of commercial production; 2. quality control during commercial production, including routine testing of products or processes; 3. trouble-shooting in connection with breakdowns during commercial production; 4. routine efforts to refine, enrich or otherwise improve upon the qualities of an existing product or process; 5. adaptation of an existing capability to a particular requirement or customer's need as part of a continuing commercial activity; 6. seasonal or other periodic design changes to existing products or processes; 7. routine design of tools, jigs, moulds and dies; and 8. activities, including design and construction engineering, related to the construction, relocation, rearrangement, or start-up of facilities or equipment other than facilities or equipment used solely for a particular research and development project.

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