Question

Research and development costs are:

(a) expensed under GAAP.

(b) expensed under IFRS.

(c) expensed under both GAAP and IFRS.

(d) None of the above.

Short answer

Expensed under GAAP

Step-by-step solution

Meaning of GAAP

GAAP stands for "generally accepted accounting principles," a collection of accounting principles, methods, and rulesthat organizations use to create or make financial statements for a given period. This increases the company's monetary information communication's comprehensibility.

Explaining the correct option

Since the future economic value is uncertain, research and development costs can be recorded as expenses as they are incurred under GAAP.

Therefore, the correct option is (a), expensed under GAAP.

Explaining the incorrect option

Option b) Research expenses are expensed utilizing IFRS (IAS 382), comparable to US GAAP. Opposite to US GAAP, IFRS contains a broad-based direction that compels enterprises to perceive development costs, including internal costs, when certain conditions are met.

Option c) Development expenditures are typically included in research and development, which are frequently categorized under the account heading of intangible assets under both IFRS and GAAP.

Option d) Option a is the correct option for the question. So, option (d) none of the above is not possible.