One project, several stages
The IAS 38 overview separates research and development: research costs are expensed, while development costs may form an intangible asset when specified criteria are met. Source: **curr-stat-ias38**, About, internally generated intangible assets. The overview does not permit every programmer salary to be capitalised; detailed criteria and evidence require separate review.
A fictional software project
During the year, a company spends 90 researching alternatives, 150 on development that meets the model’s assumed recognition conditions and 30 on ongoing maintenance. The product is not yet ready for use, and the example has no amortisation. Total spending is 90 + 150 + 30 = 270. In this model, expense is 120 and a new asset is 150.
If all costs were wrongly included in the asset, current expense would be understated by 120 and profit overstated by the same amount before tax effects. The cash outflow would not decrease. If an analyst expensed the 150 for comparison, that would create a different analytical base, not an obligatory accounting result without checking the standard and facts.
Why the capitalisation share is a signal, not a verdict
A rising share of costs included in assets may reflect projects moving to a different stage. It may also deserve attention if profit improves sharply while cash results deteriorate. Check project descriptions, readiness date, movements in work-in-progress development and subsequent amortisation. One percentage is not enough to prove either high development quality or manipulation.
Compare several years: capitalised amounts, amortisation and write-offs, total cash budget and new-product launches. Long accumulation of assets without readiness or revenue poses a different question from regular commissioning of solutions that are used. The absence of separate revenue from an internal software tool does not necessarily mean no benefit; it may support internal processes.
A balance-sheet asset and economic value
IAS 38 does not recognise internally generated brands and certain similar items as intangible assets. Source: **curr-stat-ias38**, About, internally generated brands. A business with strong customer relationships may therefore show a small balance-sheet intangible amount. A low amount does not prove a lack of competitive advantage; a high amount does not prove durability.
A common error is adding all research costs back to profit as “investment” while ignoring future burden and failed projects. That adjustment can artificially improve profitability. An analytical capitalisation model needs a consistent life, amortisation, write-offs and the same rules across periods. It is a separate scenario, not a correction to the official statements.
Reading disclosures and limits
Record project type, stage, recognition basis, readiness date, useful life and impairment indicators. For unclear costs, do not invent an exact capitalisation share. A change in useful-life estimate and correction of a prior omission have different meanings; the [financial-statement adjustments](/guides/financial-statement-adjustments/) guide is relevant.
This material does not confirm that a real project meets the criteria and does not replace technical expertise. Additional context is [intangible assets](/guides/intangible-assets/). The key analytical question is how current profit, future expense and cash spent connect with the creation of a working resource.
Check the move from project completion to resource consumption
Public data may show new capitalised amounts clearly while explaining less clearly when they began to be used. Analysis needs more than a growing balance: it needs the transition to a working product. Continuous accumulation of development work in progress and regular commissioning followed by amortisation describe different stories. A broad line-item name is not enough to choose between them.
Do not mix commercial success with correctness of the recognition date. An appropriately recognised asset may later fail because the market changes. A successful product does not automatically make every earlier capitalisation permissible. Review is based on information and requirements at the relevant time, not only on the outcome known later.
When comparing companies, mark the share of purchased and internally created resources. Acquired technology and internally created solutions may be reported differently, affecting assets, amortisation and profit despite similar economic usefulness. Before calling one company less capital-intensive, check whether part of the other’s costs is on the balance sheet while the first’s costs are current expense.