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Research and development

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Research and development

  • This topic has 1 reply, 2 voices, and was last updated 8 months ago by P2-D2.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • October 18, 2021 at 2:58 am #638077
    Aroona
    • Topics: 5
    • Replies: 5
    • ☆

    During the year ended 31 December 20X4, Bloop Co incurred expenditure on two projects
    Project 1 costs relate to the evaluation of alternatives for improved production systems to be
    implemented during 20X5 and 20X6. The company spent $1m on related salaries and materials
    and $2m on design equipment (which had an expected life of four years).
    Project 2 involves the testing of a new product which will be introduced to the market in 20X5 and
    is expected to generate profits over a four-year period. The company spent $4m on salaries and
    materials.
    The policy is to charge a full year’s depreciation on assets.
    What is the TOTAL charge to profit or loss for the year ended 31 December 20X4?
    The answer is 1.5 mil (1+ 2/4)
    My question is why have they capitalized the design equipment and depreciated it (2/4) isn’t it research expenditure too and should fully expensed to p/l?

    October 20, 2021 at 7:47 pm #638639
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6119
    • ☆☆☆☆☆

    Hi,

    The $2m expenditure is on equipment that is used in the development of the intangible asset and so capitalise and depreciated. The depreciation is then expensed through profit or loss.

    Thanks

  • Author
    Posts
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