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Research and development expenditure

This is often referred to by the abbreviation; R&D expenditure. Most companies, particularly the larger ones, are continually researching into and developing better ways of achieving their stated objectives. They may be looking for new methods of producing old lines, or discovering and elaborating techniques to produce new items either to replace or to compete with products already marketed by others. R & D is, therefore, an integral part of the world of competition and enterprise whether free or State-controlled.

Much R&D expenditure is targeted to I future production and in the past, as the benefits were expected to accrue in subsequent periods, it was often the practice to capitalize such costs and write them off over future periods. In recent years, this method of deferring costs has been reversed by the Accounting Standards Steering Committee, and the views of this body were reinforced by the 1981 Companies Act. Companies can no longer capitalize research costs, and development expenses can only be capitalized in strictly defined circumstances. These, taken along with the relevant accounting standard, are that the expenses must be geared to a clearly defined project and that future profits and resources can be reasonably expected to be sufficient to cover these expenses. Additionally, notes to published accounts must indicate both the reason for capitalization and the period over which the expenditure is to be written off.

Reference: The Penguin Business Dictionary , 3rd edt.