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Darby was also commisioned by a customer to research and, if feasible , produce a computer system to install in motor vehicles that can automatically stop the vehicle if it is about to be involved in a collision. At september 2009, Darby had spent 2.4 million on this project, but at this date it was uncertain as to whether the project, but at this date it was uncertain as to whether the project would be successful. as a consequence the assitant has treated the $2.4 m as an expense in the statement of comprehensive income.
in solution, they say that it should be treated as work in progress(current asset). i dont understand why. usually, research cost are expense, why in this case, they are treating as current asset.
Which solution?
I’m inclined to treat it as a research expense rather than as an asset. Which question, which revision kit, which number?
AH!!!! The important element of the question which I missed was the opening few words “….was commissioned by a customer …” This is not Darby’s own research – they are being sponsored by the customer. In that respect they are incurring costs which WILL be passed on to the customer, so the answer IS correct – it’s work in progress.
The only remaining issue is whether the customer is likely to renage on the debt. If there is any doubt about the recoverability of the costs so far incurred, Darby will need to reassess their continuing involvement and, in addition, possibly make a provision for the doubtful debt in respect of the costs already incurred. But there is no suggestion of these circumstances within the question.
I have just checked the printed solution and …… now I’m not a happy bunny! Why did you not also check the solution where there is a full explanation of the reasoning behind the treatment?
Please, please, please……do not waste my time answering questions which are already fully and clearly explained within the printed solutions!
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