Now that we know what to treat as and how to treat the expenses incurred in research phase, we can move onto the development phase. If the company has decided the path to pursue with the generation of the asset, it starts to develop it, meaning that it can now identify the asset and perhaps more reliably measure and state future economic benefits arising from use of the asset.

However, it’s not that clear with the recognition as it was with research phase, where everything was expensed. An intangible asset arising from development shall be recognized if, and only if, the company can demonstrate all of the following:
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We have already discussed the two main considerations a management needs to take into account when thinking about recognizing an internally generated asset. First one relates to identifying the asset itself and strictly speaking this shouldn’t be a difficulty. However, the second consideration is far trickier and with this post we’ll start opening the issue of why this is considered more difficult.

To begin with the assessment, the management needs to classify the generation of the asset into two phases – research and development phase. With this post we’ll go into more detail with the first one – research phase. As this distinction is trivial for identifying and measuring the cost, those two terms need to be clearly understandable and hopefully we’ll be able to bring more sense into this dilemma.
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There are times when a company generates an intangible asset that it may feel to be separately valued. This asset may very well be a website, software or anything similar that the company uses in its business to either increase revenue or to achieve cost-efficiency. In assessing whether the asset falls into the recognition criteria as an asset and not current period expense, there are two considerations that have to be taken into account.

First off the management needs to identify the asset itself – is it software perhaps or is it a website? Alongside with this identification the management needs to be able to assess and identify the benefits the company will gain from using this asset. They need to be clearly stated and understandable.
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