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Intangibles – Example 2 – ACCA Financial Reporting (FR)

VIVA

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    • According to KPMG, costs incurred **after the final acceptance testing and launch have been successfully completed**, should be *expensed*.
      Since the $0.5M is spent on “the use of the product”, it means that the cost is spent AFTER the product is “ready to be used”, and the development of the product must be completed in order for the product to be “ready to be used”.
      In short, that $0.5M is spent after the development stage of the intangible asset, and thus it’s not capitalised but expensed.

  3. The answer in the textbook quotes as below –

    “The $ 8 million subsequently spent after completion of the research phase is development expenditure and is capitalized as an intangible non-current asset on the statement of financial position.”

    In the video tutorial, Chris splits it to PPE ( $5m ) & Intangible as ( $3m ).

    But my question is if the prototype is considered as a PPE, then why not the $ 3m is also added to PPE. Because, as per PPE definition, “Directly attributable costs in bringing the asset to its location and condition” should be also considered as part of PPE cost for capitalization of the asset.

    • I don’t think IAS 16 applies to a product that has gone through research and development, and viewed as commercially viable, except for the tangible part of the developed asset. To get the asset to its saleable condition is part of the development expenditure, which is capitalised as part of the cost of IA. For IAS 16,the company is not developing the product, the company buys the product developed by another company, so IAS 38 doesn’t apply here.

  5. Hi sir,

    Can i just ask where you got the £3million from under the intagibles for NCA? I appreciate the £15mil as it is a patent but I’m unsure in regards to the £3million.

    Thanks

  6. I got kind of confuses that “development expenditure must be capitalised when it meets all the criteria” but here, $5m was spent on the functioning prototype, $3m was on getting the product into a safe and saleable condition. Both expenditure occurred before “TRUMP CV”?

  9. Hi,
    Shouldn’t we be capitalising the initial investigative expenses? Though it seems like a research thing, but it can be measured in cost( $6 m) with probable feasibility which are the only two arguments for not capitalising research generally.

    • Hi,

      No, the costs in the investigative phase are research costs and are expenses. Only once we then have determined that there is future economic benefit can the costs be capitalised.

      Thanks

    • I believe term “ready for use” refers to starting date of amortization of the intangible asset. As expenditure that met recognition criteria have been inccured during the year, these should be recongnized in the SOFP per IAS 38.

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