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Hello Mr Smith,
requirement B – Morph Co
with regard to the research and development
will the development cost be capitalized before the project being authorized for production?Here we have a material which was capitalized before it is brought in use ,does this meant like it is still not authorized to be used so it can’t be capitalized ?
So can we say that it shouldn’t have been capitalized because it was not in use?
otherwise that this sentence is informing us that it is not in use?Thanks,
You’ve lost me …
For intangible asset recognition, there are 6 matters to be demonstrated (assumed knowledge of FA)@
– technical feasibility of completing (for use/sale)
– intention to complete (to use/sell)
– ability to use/sell
– how it will generate future economic benefits
– adequate resources (technical/financial/etc) to complete
– ability to measure cost reliablyThe whole point of these criteria is that an entity doesn’t have to wait until actual completion/bringing into use in order to recognise costs as asset (i.e. “capitalise”).
Ok thanks sir ,
Q1 Then no need for waiting for completion or brining to use in order to capitalized
Q2 but from which point we can start capitalizing whence we incurred the cost?
Q3 and also amortisation when it must be starting?
Thanks,
Hi Sir,
4. I just want to add another question for the question C of the directors bonus
since we have some skepticism about the manipulation of the management of the sales or cost of sales in order to get more bonus so is it relevant here to check the sales and cost of sales
i.e by some comparison of the sales of this year and last year for example.Thanks
Q1 – understand that if you waited until development was complete, it would not be possible to capitalise any costs – they would have all been written off as expense (!)
Q2 – when a phase of development is reached in which all 6 criteria can be demonstrated
Q3 – when it is complete and put into use.
Q4 yes – and ISA 240 says that there is a presumed risk of fraud in revenue recognition – so there would always be some substantive procedures for sales.
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