IAS 38 paragraph 57 identifies six criteria for the capitalization of some development costs.
Required:
a. Are these criteria useful in deciding whether to capitalize an expenditure on a tangible asset, or are they relevant only for intangible assets? Explain your conclusion.
b. Assume a firm spends S20 million on a new machine that is subsequently used in production. Show how all six of these criteria would likely be met such that the machine would rightfully be treated as an asset with an assigned value of S20 million.