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Amco Co carries out research and development. In the year ended 30 June 20X5 Amco Co incurred total costs in relation to project X of $750,000, spending the same amount each month up to 30 April 20X5, when the project was completed. The product produced by the project went on sale from 31 May 20X5.
The project had been confirmed as feasible on 1 January 20X5, and the product produced by the project was expected to have a useful life of five years.
What is the carrying amount of the development expenditure asset as at 30 June 20X5?A B C D
$295,000 $725,000 $300,000Answer is A
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The costs of $750,000 relate to ten months of the year (up to April 20X5). Therefore the costs per month were $75,000. As the project was confirmed as feasible on 1 January 20X5, the costs can be capitalised from this date. So four months of these costs can be capitalised = $75,000 × 4 = $300,000.
The asset should be amortised from when the products go on sale, so one month’s amortisation should be charged to 30 June 20X5. Amortisation is ($300,000/5) × 1/12 = $5,000. The carrying amount of the asset at 30 June 20X5 is $300,000 – $5,000 = $295,000.
If you chose C you have forgotten to amortise the development costs. If you chose B or D you have either capitalised the full amount or capitalised none of the costs.I want to know how is it 10 months to get £75,000. How do we know this?
Sir I have a doubt in this why we charge amortisation on 1 month
Why not for 2 months
As asset is ready to use on30 april 20X5Amortisation only starts from when the asset is brought into use, which is when it is sold.
Thanks
According to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, how
should a material error in the previous financial reporting period be accounted for in the
current period?
A) By making an adjustment in the financial statements of the current period through the
statement of profit or loss, and disclosing the nature of the error in a note.
B) By making an adjustment in the financial statements of the current period as a
movement on reserves, and disclosing the nature of the error in a note.
C) By restating the comparative amounts for the previous period at their correct value,
and disclosing the nature of the error in a note.
D) By restating the comparative amounts for the previous period at their correct value,
but without the requirement for a disclosure of the nature of the error in a noteSir, the answer is C. Can you please explain
Hi,
A bit of a difficult one to explain as we are just following the rules in IAS 8. It there is an error then we need to ensure comparability in the accounts so if it impacts last year then we need to correct last year’s numbers. The users won’t know why the numbers are different so we need to tell them about it.
Thanks
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