Question

Q) On January 1, 2016, equipment was purchased for $100,000. The equipment's estimated residual value is $20,000, and its estimated useful life is 8 years. On December 31, 2016, the book value using the straight-line method of depreciation is $90,000.

True

False

Q)

International Financial Reporting Standards (IFRS) require the recording of research and development costs as follows:

A)Capitalize research and development costs.

B)Expense research and development costs.

C)Expense research costs and capitalize development costs.

D)Expense development costs and capitalize research costs.

Q)

Which of the following is not true in comparing U.S. GAAP and International Financial Reporting Standards (IFRS)?

A)IFRS and U.S. GAAP both allow intangible assets to be reported at their cost minus accumulated amortization.

B)IFRS allows for adjustments for increases in fair value of tangible assets.

C)IFRS requires capitalizing of research costs and expensing of development costs.

D)U.S. GAAP requires expensing of all costs of research and development.

Answer 1

1. True - Depreciable Value of Asset = 100,000-20,000 (Total Value - Residual Value).

Depreciation = 80,000/8 = 10,000. Hence book Value = 100,000-10,000 = 90,000.

2. As per IAS 38 expenses incurred on Research Phase should be charged off as and expense and Expense incurred in Development phase can be capitalized provided it can be demonstrated that the conditions laid down in IAS is met.

Hence Option C is correct.

3. Point C is not correct, As per IAS 38 Research cost is to be charged off as an expense and development cost can be capitalized if the condition laid down in standard are met.