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Hello Mr Chris,
In the case below why they consider the development cost as expense and depending on what we can start capitalizing the development cost taking the directors decision into consideration.
Thanks,
Assoria Co had $20 million of capitalised development expenditure at cost brought forward at
1 October 20X7 in respect of products currently in production and a new project began on the same date.
The research stage of the new project lasted until 31 December 20X7 and incurred $1.4 million of costs.
From that date the project incurred development costs of $800,000 per month. On 1 April 20X8 the directors
of Assoria Co became confident that the project would be successful and yield a profit well in excess of
costs. The project was still in development at 30 September 20X8. Capitalised development expenditure is
amortised at 20% per annum using the straight-line method.
What amount will be charged to profit or loss for the year ended 30 September 20X8 in respect of research
and development costs?
A $8,280,000
B $6,880,000
C $7,800,000
D $3,800,000Again, you need to attempt the question first. Remember research costs are expensed through profit and loss, plus the so called development costs can only start to be capitalised once it is highly probable that future economic benefits will be received. Up until that point then the costs will also be written off through profit or loss.
Thanks
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