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Capital development expenditure Q9 CANDEL BPP exam kit

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Capital development expenditure Q9 CANDEL BPP exam kit

  • This topic has 6 replies, 3 voices, and was last updated 11 years ago by MikeLittle.
Viewing 7 posts - 1 through 7 (of 7 total)
  • Author
    Posts
  • December 1, 2013 at 1:34 pm #148828
    alua
    Participant
    • Topics: 28
    • Replies: 37
    • ☆☆

    Hi Mike,

    Working on this question, I dont understand why the additional development expenditure of $4800 ($800 per month) in the current year to 30.9.X8, since meeting criteria on 1.4.X8 (i.e. qualifies to be capitalised) is not amortised???
    It says:
    ” In addition to the capitalised development expenditure (of $20m), further research and development costs were incurred on a new project which commenced on 1 Oct 20×7.
    The research stage of the new project lasted until 31 Dec 20×7 and incurred $1.4 m of costs.
    From that date the project incurred develpment costs of $800,000 per month.
    On 1.4.20×8 the directors became confident that the project would be successful and yield a profit well in excess of its costs.
    The project is still in development at 30 Sep 20×8.

    Answer:
    Development Expenditure:
    $’000
    Cost b/d 20,000
    Accumulated amortisation b/d (6,000)
    14,000
    Additional expenditure capitalised (800×6) 4,800
    Amortisation (20,000 x 20%) (4000)
    Balance c/d 14,800
    Charged to cost of sales:
    Research 1,400
    Development when criteria not met (800×3) 2,400
    Amortisation 4,000
    7,800
    Many Thanks,
    Almudena

    December 1, 2013 at 2:21 pm #148843
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23315
    • ☆☆☆☆☆

    Because it’s still in development stage and has not yet started contributing to revenues / profits. Therefore the matching concept (which itself is fundamental to the concept of capitalising development expenditure) is simply not appropriate ….yet.

    But when development is complete, THEN we’ll start amortising

    OK?

    December 1, 2013 at 6:30 pm #148920
    alua
    Participant
    • Topics: 28
    • Replies: 37
    • ☆☆

    Yes, thank you very much!

    December 1, 2013 at 7:40 pm #148931
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23315
    • ☆☆☆☆☆

    You’re welcome

    February 26, 2014 at 9:43 pm #160579
    Hossain
    Member
    • Topics: 1
    • Replies: 2
    • ☆

    Hi sir
    I didn’t get the amortisation cost which has been added to research whereas it has deducted from development..why the same amount(4000) has been deducted from research..
    Will u pls define this for me..
    Thanks regards
    Rajib

    February 26, 2014 at 10:19 pm #160580
    Hossain
    Member
    • Topics: 1
    • Replies: 2
    • ☆

    Sorry to ask u a wrong question..in the exam kit, they put the answers in altogether..I’ve got my answer.
    Thanx sir

    February 27, 2014 at 6:09 am #160590
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23315
    • ☆☆☆☆☆

    You’re welcome! I LOVE questions like that 🙂

  • Author
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