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Delta Ltd has developed a new food processing technology for microwave
cooking of food. The development took place over a 4 year period during
which the following costs were incurred:2010 Initial research into the feasibility of the new technology 100
Market research for potential clients 2002011 Developing various prototypes of the technology to
enable technical staff to become confident of the viability
of the new method 5002012 Further work carried out during the year to refine the
technology
December – the Board was satisfied with the
development work and confirmed the new technology
would be marketed
1,5002013 Further development work undertaken to finalise the
specification of the technology 400Testing of the overall process 430
Initial promotion of the new methodology 12402014 1 January – launching of new methodology 125
Required
a. State the requirements of IAS 38 for research and development
expenditure and clearly indicate the conditions for capitalization of
development costs.
(7 marks)b. Explain, with reasons, how the costs given above should be treated in
the financial statements of Delta Ltd.
(8 marks)
Total 15 marksQuestion iA is fine but a bit stuck with part B. Could you please help me with this.
Part b) it’s a typical example of the application of standard. You have to act like an advisor to Board and state how the figures should be treated – expensed through PnL or treated as Assets? Just go figure by figure and explain the reasoning behind your advice – each worth around 1.5 marks.
Example: Market research through Profit and Loss bcoz its sunk cost. Also state which of requirement of IAS 38 is not met.
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