RADES Educational Institute

Two Stages (as per IAS 38 / LKAS 38 – Intangible Assets)
1. Research Phase

This is the early stage — searching for new ideas or knowledge.

The goal is to discover something new, but it’s uncertain if it will succeed.

Examples:

Investigating new materials.

Testing scientific ideas.

Exploring different design options.

✅ Accounting Treatment:
All research costs are expensed in the period they occur.
→ Because there is no guarantee that the research will result in a future benefit.

2. Development Phase

This is the later stage — applying the research findings to create or improve products before they are ready for use or sale.

The project is now more certain and feasible.

Examples:

Designing and testing a prototype.

Building a model for production.

Developing new software ready for release.

✅ Accounting Treatment:
Development costs are capitalised (recorded as an intangible asset) only if all the following six criteria are met:

🧾 Six Criteria for Capitalising Development Costs (IAS 38.57)

Technical feasibility – it is possible to complete the project.

Intention to complete – management plans to finish and use/sell it.

Ability to use or sell – the product can be used or sold.

Future economic benefits – it will generate profits or savings.

Availability of resources – there are enough funds, labour, and materials to finish it.

Reliable measurement – the costs can be measured reliably.

If even one condition is not met, all development costs must be expensed.

Development costs are the costs incurred in applying 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 before the start of commercial production or use.

Now let’s break it down phrase by phrase 👇

🧩 1. “Costs incurred”

➡️ Means: The money spent or resources used during development.
💡 “Incurred” means you have already paid or become liable to pay.

✅ Example:
Paying engineers’ salaries, buying software tools, or testing materials during product development — all these are costs incurred.

🧩 2. “in applying research findings or other knowledge”

➡️ Means: Using what was discovered during research (or any other existing knowledge) to develop something practical.

✅ Example:
After researching how a battery can last longer (research phase), the company now applies that knowledge to actually build a new battery that lasts twice as long — that’s the start of development.

🧩 3. “to a plan or design”

➡️ Means: Creating a detailed plan or blueprint that shows how the new product or process will work.

✅ Example:
Engineers design a prototype of an electric car using the research results.
That design stage is part of development.

🧩 4. “for the production of new or substantially improved materials, devices, products, processes, systems, or services”

➡️ Means: The goal is to produce something new or much better than before.

✅ Examples:

New product: Developing a brand-new type of smartphone.

Improved process: Making the same medicine but using a faster and cheaper method.

Improved service: Designing an upgraded online banking system.

🟡 “Substantially improved” means not just a small change — it must be a significant improvement.

🧩 5. “before the start of commercial production or use”

➡️ Means: Development happens before the product is sold or used in the real world.

✅ Example:
All testing and prototype building happens before the product is launched in the market.
Once the product is ready to sell — development ends and production/use begins.

✅ Putting it all together

Development cost = The money spent on using research results to create a plan or design for new or improved products/processes, before they are used or sold.

🏭 Full Example

A software company:

Research phase: Tests different algorithms to find a faster one → cost = expense.

Development phase: Uses that algorithm to design and build a working mobile app prototype → cost = development cost.

Salaries of app developers

Cost of testing prototype

Cost of software tools
➡️ These are capitalised as development costs if the six criteria are met.

2027 AL class we will begin this week.

2026 AL Business Studies සිංහල online & physical class ........

1. 2026 AL Business Studies- Sinhala medium class - Online & Physical නව පංති ආරම්භය - July 2024 & July 2024. අපගේ සෑම දේශනයක්ම power point presentation slides හරහා නිර්මාණාත්මකව නිමවා ඇත. අදාල විෂය කරුණු theory සාකච්ඡා කරණ විටදීම පසුගිය ප්‍රශ්ණ පත්‍ර අදාල විෂය කරුණු සමගින්ම සාකච්ඡා කරනු ලැබේ. call - 071 134 7647

2. 2026 AL Business Studies - Online & Physical - English Medium - Class Commencement date - July 2024 - Theory + Revision Classes - Innovative way to learn. Our all lessons are carefully designed in power point presentations with adequate past paper coverage. Revision question pack is free. call - 071 134 7647

3. 2026 AL Accounting - Class Commencement date – July 2024 - Online & Physical -A/L Accounting - English Medium - Theory + Revision Classes . Innovative way to learn. Our all lessons are carefully designed in power point presentations with adequate past paper coverage. Accounting will be very easy once you learns the basics correctly "Practical knowledge beyond theories for exam success " - call - 071 134 7647

4. 2026 AL Accounting - Sinhala medium - Online & Physical නව පංති ආරම්භය - July 2024 & July 2024 - call - 071 134 7647

A/L Accounting - English Medium - Theory + Revision Classes . Innovative way to learn. Our all lessons are carefully designed in power point presentations with adequate past paper coverage. Accounting will be very easy once you learns the basics correctly👍 "Practical knowledge beyond theories for exam success🎯"

A/L Accounting - English Medium - Special Theory and Revision Classes -on Sri Lanka Accounting Standards covering AL syllabus. Innovative way to learn. Our all lessons are carefully designed in power point presentations with adequate past paper coverage.

IASC - International Accounting Standards Committee
IASB - International Accounting Standards Board
IAS - International Accounting Standards
IFRS - International Financial reporting standards
Sri Lanka Accounting Standards comprise SLFRS and LKAS.
Lets discuss..............................

A/L Business Studies - English Medium - Theory and Revision Classes -Import and export Procedures slides conducted last week in Power point presentations. Innovative way to learn. Our all lessons are carefully designed in power point presentations with adequate past paper coverage. Revision question pack is free.

2025 Revision - Accounting - lessons in simplified form. Best way to cover past papers. Online and Physical class. අපගේ සෑම දේශනයක්ම power point presentation slides හරහා නිර්මාණාත්මකව නිමවා ඇත. අදාල විෂය කරුණු theory සාකච්ඡා කරණ විටදීම පසුගිය ප්‍රශ්ණ-පත්‍ර අදාල විෂය කරුණු සමගින්ම සාකච්ඡා කරනු ලැබේ.