- April 7, 2021 at 1:38 pm #616239huikingMember
- Topics: 6
- Replies: 1
Hi, Sir, the question on intangible asset is as follows
3 Sam Co has provided the following information as at 31 December 20X6:
(i) Project A – $50,000 has been spent on the research phase of this project during the year.
(ii) Project B – $80,000 had been spent on this project in the previous year and $20,000 this year. The project was capitalised in the previous year however, it has been decided to abandon this project at the end of the year.
(iii) Project C – $100,000 was spent on this project this year. The project meets the criteria of IAS 38 and is to be capitalised.
Which of the following adjustments will be made in the financial statements as at 31 December 20X6?
A Reduce profit by $70,000 and increase non-current assets by $100,000
B Reduce profit by $150,000 and increase non-current assets by $20,000
C Reduce profit by $130,000 and increase non-current assets by $180,000
D Reduce profit by $150,000 and increase non-current assets by $100,000
ANSWER is B
I would agree for the reduce profit for 150k but the increase of non current asset of 20k is a bit confusing. In my opinion, for the project B, it was capitalized before for amount of $80k, so the opening balance for non current asset is 80k, and at the year end, it should be credit with the same amount since the project was abandoned. whereas for project C, non current asset will be 100k, so the account of NCA should be left with balance of $100k.
May i know how it would become $20k non current asset if explained through journal entries?
ThanksApril 10, 2021 at 8:44 am #616629P2-D2Keymaster
- Topics: 4
- Replies: 6473
I think that you’ve answered your own question where you say that the balance at the start of the year was $80,000 and then $100,000 at the end of the year. The overall increase is therefore $20,000.
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