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Dear Sir,
In Example 1 of the Intangibles chapter, I’d like to understand why the ‘subsequent expenditure incurred on the product development’ ($8 million) is capitalised under intangible asset along with the patent, but not under tangible asset (PPE)?
If this subsequent expenditure was to further develop or enhance the value of the patent itself then I would understand, but it seems from the wording that the expenditure is related to the development of the tangible product?
Many thanks in advance for your guidance.
Regards,
TimAssume I am developing a an improved body for an electric car. I expect to manufacture 10,000 units.
Development (principally salary costs and materials used by clever scientists) = intangible fixed asset, then amortised to match the sales of the car.
The cars themselves will be inventory – costs will be the cost of the metal (or whatever) plus the wage cost of the factory workers.
So the development costs will never be a tangible fixed asset (PPE).
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