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In BPP kit Question 56 i didn’t understand the capitalised development expenditure….Can you show me the working for amortisation,value that would be included in the financial position for capitalised development expenditure and cost of sales balance…..
Here are the information for the calculation
trail balance figures:
Cost of sales Dr 204000
capitalised development expenditure(1 oct 20X7) Dr. 24600
accumulated amortisation Cr. 6000
Research and development cost Dr. 8600note : In addition to the capitalised development expenditure (of $20 million), further research and development cost were incurred on a new project which commenced on 1 oct 20X7. The Research stage of the new product lasted until 31st dec 20X7 and incurred $1.4million cost. From that date the project incurred development cost of $800000 per month.On 1 April 20X8 the director became confidant that the project would be successful and yield a profit well in excess of its cost. the project is still in development at 30 sep 20X8
capitalised development expenditure is amortised at 20% per annum using the straight line basis all expensed research and development cost is charged to cost of sales.
October 1 – December 31 $1,400,000, pure research, write off
January 1 – March 31 3 x $800,000 = $2,400,000, development costs but no certain viability, so write off
April 1 – September 30 6 x $800,000 = $4,800,000, development expenditure on a viable project, so capitalise
Year to September 30 amortisation of brought forward capitalised development expenditure 20% x $20,000,000 = $4,000,000
Amount to carry forward on statement of financial position as at september 30 ($20,000,000 – $4,000,000) + $16,000,000 + $4,800,000 capitalised on the new project = a total carry forward of $20,800,000
(Statement of profit or loss expense for the year is amortisation of $4,000,000 + pure research of $1,400,000 + expenditure on uncertain viability project of $2,400,000 giving a total of $7,800,000)
OK?
Sir why should i amortise only on capitalised development expenditure $20,000,000
what about additional development expenditure $4,800,000 why didn’t i amortised it
and another confusion is why did i exclude $2,400,000 from additional development expenditureIn cost of sales i have one confusion and that is why did i add only $2,400,000 as development cost why didn’t i took 9 months development cost…..
This extract from the question answers both the uncertainties expressed in your first paragraph …”the project is still in development at 30 sep 20X8″
And this extract from my post answers the uncertainty expressed in your second paragraph … “January 1 – March 31 3 x $800,000 = $2,400,000, development costs BUT NO CERTAIN VIABILITY, so write off”
OK?
Sir is their any lecture for this chapter because i know the format but i face problem in working out adjustment
and another thing do i have to learn other chapter such as chapter 12-18,23-28
is this chapter related to financial statementi am very confused plz guide me sir
“Sir is their any lecture for this chapter because i know the format but i face problem in working out adjustment” – what’s the matter with my explanation?
Yes, there is a recorded lecture – it’s on the chapter about intangible assets (from memory)
“do i have to learn other chapter such as chapter 12-18,23-28” – you need to be on top of ALL the chapters in the course notes, whether or not there is a lecture covering that chapter
I understood that replay…i didn’t had any problem with that replay… i was actually talking about Presentation of published financial statement only…sry i didn’t indicated it
and i was also trying to know that do i have to learn other chapter(12-18,23-28) at first in order to answer Presentation of published financial statement properly as i am having adjustment problem.
as their is no lecture for this chapter and you told us to self study this chapter and in note there are only formates, no examples…thats why i am little bit confused
Practice the mini-exercises at the end of the course notes until you are totally happy with each of the topics covered
Practice the old-style questions 2 from past exams or from a revision kit or watch me work through a lot of them – you’ll find those recordings in “revision lectures” on the F7 menu page
You will probably suffer quite badly to begin with but then rapidly improve and, of course, post any problems that you may encounter on this page and I shall get back to you
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