You have been hired as an assistant in the finance department of a medium-sized publicly traded firm that is following IFRS. Realizing the importance of accounting to your new duties, you have recently completed a course in financial accounting. In this course you learned that research costs are expensed in the period they are incurred. You also learned that if specific criteria are met, development costs are capitalized.

Recently your firm has developed an important breakthrough in security codes for the electronic transfer of information on the World Wide Web. The research costs associated with this project have been high. If this cost were capitalized this year and written off against the anticipated revenues from the sale of this technology, this year's earnings per share would increase by 10 percent rather than show a modest decline.

Your superior favours capitalization because the firm wants to issue some new shares before the end of the year. This change would increase earnings per share significantly. She has asked your opinion. She has also asked you to refer to any appropriate accounting principles, constraints, or concepts to support your discussions. A meeting with your superior has been set for tomorrow.

In the meantime you have researched your firm's past practice and reviewed IAS38 (Accounting for Intangible Assets). In the past your company has not spent this much on research. Past practice has been to expense the costs when they were incurred. Other companies expense similar costs.

Required:

Prepare notes for tomorrow's meeting with your superior.