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Dear Mike,
I have a question regarding the this question from past papers “Emerald”
Emerald has had a policy of writing off development expenditure to the income statement as it was incurred. In preparing its financial statements for the year ended 30 September 2007 it has become aware that, under IFRS rules, qualifying development expenditure should be treated as an intangible asset. Below is the qualifying development expenditure for Emerald:
(amounts in $’000)Year ended 30 September 2004 300
Year ended 30 September 2005 240
Year ended 30 September 2006 800
Year ended 30 September 2007 400All capitalised development expenditure is deemed to have a four year life. Assume amortisation commences at the beginning of the accounting period following capitalisation. Emerald had no development expenditure before that for the year ended 30 September 2004.
Answer:
Profit and loss account: x7 x6
Amortisation of development expenditure 335 135
Balance sheet
Development expenditure 1,195 1,130
Statement of changes in equity
Add to retained earnings balance at 1.10.x5 465My question is regarding the figure included in the statement of changes in equity, for me is not clear the reason its allocated there (I understand it’s coming from the figures 540-75=465). Shouldnt this figure rather be included in the SFP in X5. Thank you in advance for the clarification.
Best regards,
Miguel
Yes, it should. But we’re not asked for the sofp as at September X5
The effect of that entry is to debit INCA and credit retained earnings and that’s now the start point for further amortisation of the X4 expenditure, amortisation of the X5 expenditure and capitalisation of the X6 expenditure
Is that any better?
Yes than you! Although I have one general question about development expenditure, in general basis amortization of the development expenditure should commence at the begging of the accounting period following capitalization? In case it is not are we going to receive this info in the exam? Thank you once again for your help.
Best regards,
Miguel
Amortisation begins with effect from the date that the asset that was being developed goes into production and started to contribute to revenues and profits of the company
This means that your understanding of commencement date is incorrect! Check carefully that you nderstand why!
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