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Hi Sir,
I think I am being really stupid but can you please help me understand why the machinery for research is capitalised as a non current asset? The question seems so easy, I do not know why I am confused!!
Question: During the year ended 31 March 20X7, Meadows incurred the following expenditure:
$15,000 Pure research
$40,000 Applied research
$70,000 Development expenditure
$50,000 Machinery for researchHow much of the above expenditure can be capitalised as non-current assets?
I understand that Research costs should not be capitalised, hence why I would not include the pure research ($15k) and applied research costs ($40k), and that development costs providing they meet the criteria should be capitalised- hence why I would Includ the development expenditure ($70k), however why would one include machinery for research? Surely the machinery for research is a cost to aid research and not development?
Sorry if I am being silly, if you could help clarify that would be great?
Thanks
Michelle
The expenditure on research (both pure and applied) has gone and there can be no futu benefit because it doesn’t satisfy the criteria for being deferred as development costs.
But machinery for research has presumably got a life after research.
It’s really a matter of the difference between revenue expenditure and capital expenditure and expenditure on machinery is capital expenditure
I see…I would not have picked that up.. if this was an exam question… Are you assuming that the machinery for research has a life after research because I mentioned the answer? or because it says it somewhere in IAS 38 that machinery used for research has a life after research?
Thanks
M
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