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Question - Anne Willows, the new accountant of Protea Limited, a pharmaceutical company, is unsure about how to account for research and development costs. She believes that all associated research and development costs should be expensed as running costs of the business and that these costs will not always result in future economic benefits flowing to the company. However, the previous accountant had capitalised costs incurred on research and development as he felt that it added to Protea Limited's income generating structure and that this value would last for more than one period. Anne has asked you for advice on this matter.
Required - Write a memorandum to respond to Anne's query regarding how to recognize the research and development costs. Your discussion should include reference to both the Conceptual Framework and IAS 38 Intangible Assets.
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