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sir in recognition of expense , start up costs, training cost, advertising cost, business relocation cost are written of if intangible asset does not meet the criteria for recognition as an asset.
but if our intangible assets meet the criteria for recognition and above all costs are incurred related to that intangible asset, then should we have to all of those above mentioned expenses capitalize,
during the year to 31 dec 2008 Co X incurred 200,000 of development costs for a new product, 60000 on 1st january 2008 on machinery specially used to help develop the new product and 40000 on building identity. commercial production is expected to start during 2009.
at what value should intangible appear in SFP as at 31 dec 2008.?
my solution:
development cost to 31dec= 200000
on 1st jan = 60000
less: amortization (60000/4)= 15000so I got answer of 245000. in book, 15000 is added in 200000. but why sir?
Because of the matching principle! Amortisation should commence only after you have income / revenue against which to match the expense
Ok?
sir i did not get the point.. 🙁
firstly,why the cost of january 60000 not added with 200000 ?
” Amortisation should commence only after you have income / revenue against which to match the expense”. but you have added amortization 15000 with 200000. why?
Ok, the plant acquired for the project is not a cost of one year – it’s depreciated over the shorter of the plant’s useful file or the life of the project if there is no use for the plant aft the project is completed.
Here the plant has apparently a four year useful life so only the depreciation each year is a relevant cost of the project
Is that better?
ok i got it 🙂
sir let’s say production start from below years
1. 1st jan 2008 itself
so here we need to record 200000 only?2. 1st jan 2010
so here we have to record the amount 200000+30000.. right?3. if it says production didn’t begin at all 😀
sir can also tell me the amount that goes to P/L in all those 3 conditions.
I guess no amount goes to P/l in 1st condition. not sure though 🙁
Over what period are you intending to amortise? If production starts in 2008 then one year amortisation for 2008
If we have 200,000 in development as an asset at the start of 2010 and production starts on 1 January, 2010 then amortise for one year for 2010
If production doesn’t start, then no amortisation
If production NEVER starts, as soon as we realise that there is going to be no revenue generated, we should expense all the deferred development expenditure immediately
Ok?
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