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Example 2 – Intangibles (2) – Open Tuition textbook

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Example 2 – Intangibles (2) – Open Tuition textbook

  • This topic has 2 replies, 2 voices, and was last updated 5 years ago by soorajraoa.
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  • Author
    Posts
  • February 15, 2020 at 3:18 pm #561946
    soorajraoa
    Participant
    • Topics: 1
    • Replies: 1
    • ☆

    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 ( S5m ) & 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.

    February 17, 2020 at 8:06 pm #562161
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7149
    • ☆☆☆☆☆

    Hi,

    Because the $3m is not a physical asset unlike the PPE.

    Thanks

    February 18, 2020 at 5:14 pm #562298
    soorajraoa
    Participant
    • Topics: 1
    • Replies: 1
    • ☆

    Hi,
    Thanks for the response.

    Agree that it’s not a physical asset, but in the question, it says – $3m – “the remainder on getting the product into a safe and saleable condition”.

    So doesn’t that mean its the cost incurred to bring the prototype to the safe & saleable condition? which qualifies for adding the cost along with PPE?

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