DEVELOPMENT EXPENDITURE

19 KAPLAN Amco Co carries out research and development. In the year ended 30 June 20X5 Amco Co incurred total costs in relation to project X of $750,000, spending the same amount each month up to 30 April 20X5, when the project was completed. The product produced by the project went on sale from 31 May 20X5. The project had been confirmed as feasible on 1 January 20X5, and the product produced by the project was expected to have a useful life of five years. What is the carrying amount of the development expenditure asset as at 30 June 20X5? A $295,000 B $725,000 C $300,000 D $0 ANS The costs of $750,000 relate to ten months of the year (up to April 20X5). Therefore the costs per month were $75,000. As the project was confirmed as feasible on 1 January 20X5, the costs can be capitalised from this date. So four months of these costs can be capitalised =$75,000 × 4 = $300,000. The asset should be amortised from when the products go on sale, so one month’s amortisation should be charged to 30 June 20X5. Amortisation is($300,000/5) × 1/12 =$5,000. The carrying amount of the asset at 30 June 20X5 is $300,000 – $5,000 = $295,000 Good day, I don't understand how the 750,000 relates to 10months of the year when the project started in January 20x5.I'll appreciate if you can explain better