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Merlot Co is engaged in a number of research and development projects during the year
ended 31 December 20X5:
Project A – A project to investigate the properties of a chemical compound. Costs incurred
on this project during the year ended 31 December 20X5 were $34,000.
Project B – A project to develop a new process which will save production time in the
manufacture of widgets. This project commenced on 1 January 20X5 and met the
capitalisation criteria on 31 August 20X5. The cost incurred during 20X5 was $78,870 to
31 August and $27,800 from 1 September.
Project C – A development project which was completed on 30 June 20X5. Development costs
incurred up to 31 December 20X4 were $290,000, with a further $19,800 incurred between
January and June 20X5. Production and sales of the new product commenced on
1 September and are expected to last 36 months.
What amount should be expensed to the statement of profit or loss and other
comprehensive income of Merlot Co in respect of these projects in the year ended
31 December 20X5?
How project 2 should be accounted, please explain that. thank you sir. for your help.You must have an answer in the same book in which you found the question, and so in future ask about whatever it is in the answer that you are not clear about..
Project A is research and therefore all the costs will be charged in the SOPL.
Project B is development and will therefore be capitalised in the SOFP, and amortisation will be charged in the SOPL.
Project C is again development, and assuming again that it meets the criteria it will be capitalised in the SOFP and amortisation charged in the SOPL.
Have you watched my free lectures on research and development? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
Project A 34,000
Project B 78,870
Project C ($290,000 + $19,800) × 4/36 34,422
–––––––
147,292
Sir in this, I don’t understand the reason why project B’s cost is 78870. while it is the development cost and the cost of “27800”(from the question) is the cost incured after the completion, and it is not included. Did they not capitalize the asset?The $78,870 was spent before the date on which it met the capitalisation criteria, and therefore this will not be capitalised and will be charged as an expense in the SOPL.
The $27,800 was spend after it met the capitalisation criteria, and therefore this will be capitalised and appear in the SOFP and not be charged as an expense in the SOPL.
that means only the costs after recognition are capitalized.
thank you sir
concept cleared
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