SSAP 13 gives guidance on the accounting policies to be followed in respect of research and development expenditure. These policies must have regard to the fundamental accounting concepts, including the 'accruals' concept and the 'prudence' concept.

The term 'research and development' is used to cover a wide range of activities, including those in the services sector. Classification of expenditure is often dependent on the type of business and its organisation. However, it is generally possible to recognise three broad categories of activity, namely pure research, applied research and development.

The standard defines these categories and specifies the accounting policies that may be followed for each.

• Expenditure on pure and applied research (unless it is expenditure on fixed assets, which should be capitalised and amortised over their useful lives) should be written off in the year of expenditure through the profit and loss account.

• Development expenditure should also be written off in the year of expenditure except in certain strictly defined circumstances. In situations where all the relevant criteria are met, it is permissible to defer development expenditure to the extent that its recovery can reasonably regarded as assured. Such deferred development costs must be amortised in future years.