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Hello sir
wanted to know if the calculations I have done is correct of notQuestion
A company had $20m of capitalised development expenditure at cost brought forward at 1st October 2017 in respect of products currently in production and new project began on the same date.The research stage of new project lasted until 31st December 2017 and incurred $1.4m of cost. from the date the project incurred development cost of $800000 per month. On 1st April 2018 the directors became confident that the project would be successful and yield a profit well in excess of cost. The project was still in development at 30th September 2018. Capitalise development expenditure is Ammortised at 20%per annum using the straight line method.
What amount will be charged to profit or loss for the year ended 30th September 2018 in respect of research and development cost.Answer
9months= 800000×9=7200000
straight line method= (20%×9/12) =0.15
0.15×7200000=1080000
7200000-1080000=6120000
6120000+2000000=8120000am I correct?
No, sadly you’re way off target
The brought forward capitalised amount of $20 million is first to be dealt with and there is 20% amortisation to come off that figure = $4 million (incidentally, that can’t be amortised at 20% straight line because we don’t know how much that $20 million originally cost so we could then take a straight line figure)
Then comes the research cost of $1.4 million and that is expensed in full in the year to 30 September, 2018
Then comes the monthly expenditure at $800,000 per month from 1 January, 2018 until the directors determine that the project is viable on 31 March, 2018 so that means a further 3 x $800,000 = $2.4 million to be expensed this year
The only amount that we should capitalise is from 1 April, 2018 to 30 September, 2018 – 6 x $800,000 = $4,800,000
So to expense there is $4 million + $1.4 million + $2.4 million = $7.8 million
We won’t amortise the capitalised amount on this new project because the project is still in progress as at the year end
OK?
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