Question

1. Koby Co Ltd is involved in the research and development of a new type of three-finned surfboard. For this R & D it has incurred the following expenditure:

• $60,000 obtaining a general understanding of water-flow dynamics
• $30,000 on understanding what local surfers expect from a surfboard
• $80,000 on testing and refining a certain type of fin
• $150,000 on developing and testing a full prototype of the three-finned board, to be called the ‘trident’.

There is expected to be a very large market for the product, which will generate many millions of dollars in revenue.

Required:

As per AASB 138 Intangible Assets, determine the correct accounting treatment for each of the above expenditure as:

1. research costs or development costs, and
2. expensed or capitalised.

Answer 1

As per AASB 138 Intangible Assets

For an asset to be identifiable, the asset must be able to either be separated from the business or must arise from a legal document (such as a contract) or legal right (such as a trade mark).

• $60,000 obtaining a general understanding of water-flow dynamics

Its research cost and Its not satisfied defination of Intengible assets so its would be expensed off

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

Its research cost and Its not satisfied defination of Intengible assets so its would be expensed off

• $80,000 on testing and refining a certain type of fin

Its research cost

Its not satisfied defination of Intengible assets so its would be expensed off, because testing and refining may result in assets or may it will not creat assets

• $150,000 on developing and testing a full prototype of the three-finned board, to be called the ‘trident’.

It would be capitalised as developing cost