When an internally generated intangible asset meets the recognition criteria, the appropriate treatment for costs previously expensed is:Group of answer choicesinclude in the cost of the development of the asset.no adjustment as these amounts may not be reinstated.capitalize into the cost of the asset and adjust the opening balance of retained earnings.Reinstatement.
Question
When an internally generated intangible asset meets the recognition criteria, the appropriate treatment for costs previously expensed is:Group of answer choicesinclude in the cost of the development of the asset.no adjustment as these amounts may not be reinstated.capitalize into the cost of the asset and adjust the opening balance of retained earnings.Reinstatement.
Solution
When an internally generated intangible asset meets the recognition criteria, the appropriate treatment for costs previously expensed is to capitalize them into the cost of the asset. This means that these costs are added to the value of the asset on the balance sheet, rather than being expensed in the income statement.
Here's a step-by-step explanation:
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Identify the internally generated intangible asset: This could be something like a patent, trademark, or software that the company has developed.
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Determine if the asset meets the recognition criteria: According to the International Accounting Standards Board (IASB), an intangible asset can be recognized if it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the cost of the asset can be measured reliably.
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If the asset meets the recognition criteria, the costs that were previously expensed should be capitalized: This means that these costs are added to the value of the asset on the balance sheet.
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Adjust the opening balance of retained earnings: The costs that were previously expensed and are now capitalized will increase the value of the asset and decrease the expenses, which will increase the retained earnings.
Please note that the treatment can vary depending on the specific accounting standards used (e.g., IFRS, US GAAP).
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