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Project C costs to 30th June $19,800
Project C was completed on 30th June 2005.
related costs in the SOFP at the start of the year were $290,000.
Production and sales of the new product commenced on the 1st September and are expected to last 36months.what amount is expensed to the statement of profit or loss and other comprehensive income for year ended 31 December 2005 in respect for this project?
____________________________________________________________________Answer is (19800+290000)*(4/36)
Am i correct in assuming it met development criteria on 30th June? I do not understand why they have capitalised costs before 30th June?
One would assume that it met the development criteria when the project was commenced. Production and sales do not have to start when the project starts (the whole point is that it takes time and money to develope the product before they can start to sell) – all that matters is that they do expect they will be able to produce and sell.
Once the product does start to be produced, they then amortise/depreciate the capitalised costs of development over the expected life of the product.
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thanks!
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project B
A project to develop a new process which will save time in the production of widgets.
the project was started on the 1 Jan 2005 and met the capitalisation criteria on 31st Aug 2005.project B cost to 31 Aug $78870
project B cost from 31 Aug 2005 $27,800here they have not amortised the $27,800 does amortisation only start when sales commence i thought it was as soon as items are capitalised as an asset?
thanks
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or is this because they dont have to capitalise it straight away?
Amortisation starts when the benefits start – it is to match the costs against the benefits.
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ok so it doesn’t say in the question anything other than “met criteria” so i assume benefits have not started
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