Question

Al Mavali Enterprise is a manufacturer of engines for high-tech buses. The enterprise was engaged in the business of providing engineering and support services to bus manufacturers. On 1st January, 2018, the enterprise has received a fresh order from Tamin Corporation a leading bus manufacturer in a country. Tamin Corporation ordered Al Maveli Enterprise to develop a new design of electronic turbo engine, for that Tamin Corporation has sent all technical specifications. Al Maveli Enterprise was in need of funds for completing this order. The total fund required for this project was OMR 270,000. So, the enterprise mobilizes this amount of fund by availing long term loan from the enterprise’s bank. Below are the details of expenses incurred for this research and development project.

 Salaries paid to engineers and technicians on 20th February 2018 was OMR 47,250

 On 8th April, 2018 the test model was developed at a cost of OMR 67,500

 On 12th July, 2018 the cost of revising the test model was for OMR 81,000

 First test model was developed on 31st July, 2018 at a cost of OMR 21,600

 On 20th November, 2018 a conference was conducted and technical experts were invited for the introduction of newly designed engine. The expenses of the conference were OMR 13,500

 On 23rd December, 2018 the new product development electronic turbo engine was achieved. According to Al Maveli Enterprise the budgeted net profit for the year 2018 was OMR 243,000.

Required:
On the role of an accountant assess the proper accounting treatment relating to the research and development project of developing a new electronic turbo engine for high-tech buses in the financial statements for the year 2018.

Answer 1

Ans

Calculation of Total Research & Development Cost:-

1. salary paid to engineer's & technicians= OMR 47250

2. testing of Develop model cost = OMR 67500

3. Cost of revising the test   model = OMR 81000

4. Final Model development cost = OMR 21600

5. Conference cost = OMR 13500

Total Research & Development Cost = OMR 2,30,850

According to accounting preceptions the economic benefit is expected to flow to the entity as a result of incurring the Research & development expenditure, So these expenses are incurred to bring the new asset of technique which is new design of electronic turbo engine. it create a viable asset in the company, so all the R&D cost should be captalised.