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Purpose and benefits

Firms using the accrual basis of accounting account for all R&D costs as expenses during the period in which they are incurred. Companies that provide R&D services to others recognise the related costs through their cost of operations. Companies which provide contracted services to perform R&D, retaining some level of financial risk in the venture, must recognise the related costs as both cost of operations and R&D expenses.

Exploratory activities unique to the extractive industries, software development costs and market research and testing expenses are exceptions to the accounting treatment for R&D efforts.