Question

QUESTION 2

Nepture Ltd is developing a new form of individual transport that will act like a personal hovercraft. Costs for the year ended 30 June 2019 are:

Research: $950,000

Development costs: $650,000


Including in the development costs above, the accountant recognised that $250,000 were incurred before Nepture Ltd determined that this ‘prototype’ will possible generated revenue to the company.

Due to the high individual cost of items, sales of this 'prototype' model will be small and generate $100 000 per year over the next 4 years.

REQUIRED

How much of the research and development cost should be expensed in the period ended 30 June 2019 and what amount should be amortised? You are required to show your working

Answer 1

As per accounting standard Research cost is charged in the year in which cost was incurred. Further out of development cost $250,000 was also epensed in the current period.

Remaining cost will be amortised over the next 4 years.

Cost should be expensed in the period ended 30 June 2019:

Research Cost = $ 950,000

& Development cost of $ 250,000

Further remaing development cost of $ 400,000 will be amortised over the period in which it is probable that there will be future economic benefits from the asset.

So $ 100,000 will be amortised every year.