Question

3:

Sooraj Ltd is involved in the research and development of a new type of three-finned surfboard. For this S & J it has incurred the following expenditure:

• $50 000 obtaining a general understanding of water-flow dynamics

• $30 000 on understanding what local surfers expect from a surfboard

• $90000 on testing and refining a certain type of fin

• $190 000 on developing and testing a full prototype of the three-finned board, to be called the 'thruster'. There is expected to be a very large market for the product, which will generate many millions of dollars in revenue.

REQUIRED Determine how the above expenditure would be treated for accounting purposes

Please don't copy other CHEGG ANSWERS because they are not answered according to the question. please answer according to question and marks

Answer 1

Research & Development cost are generally included in the company's operating expenses and reflected in its income statement.

In the given question we can easily see that "SOORAJ LTD." Involved in the Research & Development of a new type of three-finned surfboard and due to this they incurred the following expenditure of $3,60,000 has to be included in the operating expenses which are ultimately reflected in the debit side of income statement or in the head of operating expenses.