Question

In year 1, in a project to develop product X, Lincoln company incurred research and development cost totaling $10 million. Lincoln is able to clearly distinguish the research phase from the development phase of the project. Research- phase costs are $6million, and development - phase costs are $4millon, All of the IAS 38 criteria have been met for recognition of the development costs. Product X was brought to market in year 2 and its expected to be marketable for five years> total sales of product X are estimated at over $100 million. Required: determine the impact on year 1 and year 2 income related to research and development costs under IFRS, filling in the brackets provided below

In year 1: A given the research and development expenditures, the amount to expenses at end of year 1 should be $_____ ; the basis is

B. given the research and development expenditure, the amount to capitalize an intangible asset at end of year 1 should be : $ the basis is:

In year 2: The amortization expense on the intangible asset capitalized above should be ___ show calculation

Answer 1

As per IAS 38, Research cost considered as expense and Development cost should be capitalize intangible asset and amortized of capitalized cost during useful life of project.

A given the research and development expenditures, the amount to expenses at end of year 1 should be $ 6 million (Research phase)

Given the research and development expenditure, the amount to capitalize an intangible asset at end of year 1 should be $ 4 million (Development phase)

In year 2: The amortization expense on the intangible asset capitalized above should be $ 0.80 million (4 million /5 years)