Introduction to Development Stage Enterprises

accountingnotes By accountingnotes, 20th Jan 2011 | Follow this author | RSS Feed
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Financial Accounting and Reporting Lesson 11: Introduction to Development Stage Enterprises

Development Stage Enterprises

Development Stage Enterprise. To determine if a company is at its development stage, accountants have to use professional judgement. The standards does not set a concrete measure or quantified measure of what a development stage enterprise is thus professional judgement is to be used.

As a general rule, a company is still at its development stage when it has not started its intended operations or it may have started operating as intended but has not generated its potential in terms of revenue and operational efficiency. A company that is still focusing on the following may still be on the development stage:

1. Ongoing research and development of major and primary products or services
2. Market research and initial customer feedback
3. Construction of primary operating facilities like manufacturing plant or business offices
4. Ongoing hiring and training of its primary workforce
5. Looking for funding from various sources for its operations (sourcing of capital)

Accounting Treatment and Reporting. A development stage company is required by the standards to account for its economic transactions as if it is a fully operating company. There are no special treatments for development stage companies in term of accounting of its economic transactions. All the standards must be followed with no exceptions.

Disclosures.
A company deemed under development stage must prepare a full set of financial statements. It must include the following with some additional disclosures:

1. The statement of financial position must include “deficit accumulated during the development stage”
2. The statement of earnings must include a cumulative totals of revenue and expenses from the company’s inception
3. The statement of cash flow must include a cumulative total of cash flows form the company’s inception
4. The statement of owners equity must include the dates and number of shares issued for cash and other considerations including the basis of valuation of these considerations
5. The notes to the financial statements must include a note that identifies the company as under development stage

This is just an overview of development stage enterprise. Specific standards will be discussed in detail on future lessons.

Read more CPA review notes in Bookeepedia.

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21st Jan 2011 (#)

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