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With the following q:
D’s YE is 30/9/04. D commenced the Development stage of a project to produce a new drug on 1/1/04. Expenditure of 40,000 per month was incurred until project was completed 30/6/04 drug went into immediate production. Directors became confident of projects success on 1/3/04. Drug has estimate life of 5 years.
What amount will D charge to P&L for Dev costs,incl amortisation for YE 30/9/04
The answer is:
Expenses Jan to March 40,000 * 2= 80,000
4 months capitalised and amortised
40,000 * 4/5 years * 3/12= 8000
I understand where the 40,000 *4/5 is coming from as it’s when the director decided met the criteria..not sure where the 3/12 part is coming from however? Can you help explain? Why it’s 3/12 and what months they are?
Thanks
“40,000 * 4/5 years * 3/12= 8000”
This is $40,000 per month
*4 is the period from 1 March, 2004 to 30 June, 2004
/5 is the number of years that the drug is going to be producing revenues
*3/12 is the period from 1 July, 2004 to 30 September, 2004 and that’s the 3 months this year that there are revenues
So … $40,000 x 4 = $160,000 capitalised
Over 5 years that’s $32,000 per annum
And for 3 months (July to September) that’s $8,000
OK?
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