Question

At a meeting on 16 June 2019, the directors of Swan Ltd decided to change the...

At a meeting on 16 June 2019, the directors of Swan Ltd decided to change the company’s accounting policy in regard to research and development expenditure. In previous years, research and development expenditure had been capitalized and amortized over 3 years. In line with this policy, $75 000 was capitalized on 1 January 2018. The new policy is to write off all research and development to expense when incurred. During the year ended 30 June 2019, the company spent a further $62 000 on research and development which was capitalized on 1 January 2019. Research and development expenditure is allowable as a deduction for tax purposes when incurred.

Required

Prepare any note disclosures required by AASB 108/IAS 8 in respect of the change in accounting policy. Show all workings.

Homework Answers

Answer #1

As per IAS 8 – Change in Accounting Policy, The Change is accepted only  if such change:

- As required by statutory Requirement

- As the presentation and disclosure will be more reliable and relevant

Thus in the given case concerned, Capitalizing Research and Development expenses, without satisfying the criteria of IAS 38 Intangible Asset, is not supporting steps as per Accounting Standards and guidance.

Hence Expenditure in the name of Research and Development shall be charged to Income Statement on Retrospective basis, as it is Accounting error and not change in accounting policy.

As per IAS 8 states that Accounting policy must be in coherence with the Accounting standard and guidance , no organization can made accounting policy which are not in coherence with Accounting Standards as issued by the Board.

Hence from above the action is rectification of earlier posted entry and not the change in accounting policy.

Hence here Company will rectify retrospectively the wrongly capitalization of research and Development cost.

Hence 75000$ and 62000$ shall be reversed and charged to Income Staement.

Secondly earlier amortization expenses to be reversed also.

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