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Dempsey’s year end is 30 September 20*4. Dempsey commenced the development stage of a project to produce a new pharmaceutical drug on 1 January 20*4. Expenditure of $40,000 per month was incurred until the project was completed on 30 June 20*4 when the drug went into immediate production. The directors became confident of the projects success on 1 March 20*4. The drug has an estimated life span of 5 years time apportionment is used by Dempsey where applicable.
What amount will Dempsey change to profit or loss for development cost incurring and any amortization , for the year ending 30 September 20*4?( Sir , l need a solution for this , I request for an explanation. )
Hi,
I’m not going to just answer the question directly, you need to work it through yourself in order to develop a better understanding. Also, you didn’t ask politely enough either!!!!!
To get you started thinking, there will be research costs to be expensed up until the project entered into the development phase. There will then be amortisation on any expenditure then capitalised.
Let me know when you’ve got an answer and I’ll see what you’ve done and explain where you may have gone wrong.
Thanks
Hello,
May i offer a solution.Expenditure from 1 March to 30 June will be capitalised as development expenditure being $40,000 * 4 mths = $160,000
Expenditure from 1 January to 28 Feb will be classified as research and will be expensed to profit or loss – $40,000 * 2 mths = $80,000
Amortisation of the capitalised development expenditure will commence from 1 July , as the product went into immediate production – hence amortisation from 1 July to 30 September will be expensed to profit or loss as follows: $160,000 years /5 * 3*12 = $8,000
Therefore the total expense to profit or loss for the year ended 30 September 20X4 will be $88,000….
Is this correct?
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