Intangibles – Example 2 – ACCA Financial Reporting (FR)
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Why the 0.5 million is going to SPL directly expensed ? Should we capitalize it as a test cost(development) for example ?
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.
Hi
Can you please tell why we have taken 3 million in intangibles and 5 million in PPE ?
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
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”?
Hello Sir,
you are awesome! the way you connect Cashflows and prepare us for the future topic is highly appreciable.
Hello Sir,
I have a question. Why functioning prototype’s cost of $5M classified as PPE and separated from Intangible asset ?
It is going to be used as a tangible asset to help generate future profits and so classified as PPE.
Hello Sir,
prototype is the design and something like that of the product, so how do we consider it as PPE? isn’t it correct to consider it as IA?
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
Hi,
Which cost are you talking about please? Both the purchase of the patent and development costs can be capitalised per IAS 38.
Thanks
I thought the criteria as we dont capitalise unless asset it ready to use…but we still put it in a SOFP?
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.