Question

In: Accounting

Indicate all of the costs that would appear under Non-Current Assets on the Statement of Financial...

Indicate all of the costs that would appear under Non-Current Assets on the Statement of Financial Position:

a. Development costs for new products which conform to the six criteria for capitalization.

b. New driveway to the office building.

c. Costs to register trademarks.

d. Estimated reclamation costs (asset retirement costs) for a gas well to be paid at the end of the well's life.

e. Repair and maintenance costs for new equipment.

f. Costs for repainting the office.

g. Amounts paid for research activities.

Solutions

Expert Solution

a. Development costs for new products which conform to the six criteria for capitalization.-Will appear as intangible asset under non current asset as per IAS 38

Under IAS 38, an intangible asset arising from development must be capitalised if an entity can demonstrate all of the following criteria:

  • the technical feasibility of completing the intangible asset (so that it will be available for use or sale)
  • intention to complete and use or sell the asset
  • ability to use or sell the asset
  • existence of a market or, if to be used internally, the usefulness of the asset
  • availability of adequate technical, financial, and other resources to complete the asset
  • the cost of the asset can be measured reliably

If any of the recognition criteria are not met then the expenditure must be charged to the income statement as incurred.

b.New driveway to the office building.- Can be capitalised as Land Improvements and Infrastructure under non current asset. However the same should be depreciated over its useful life.

c.Costs to register trademarks.-will come under non current assets only to the extent of costs directly attributable to obtaining a trade mark

d.Estimated reclamation costs (asset retirement costs) for a gas well to be paid at the end of the well's life.- present value of reclaimation costs will form part of non current assets as on date of capitalisation

e.Repair and maintenance costs for new equipment.- This expense is revenue in nature and will not appear under non current assets

f.Costs for repainting the office.-This expense is revenue in nature as it doesnt improve the value /life of asset  and will not appear under non current assets

g.Amounts paid for research activities.-expenditure on research does not directly lead to future economic benefits, and capitalising such costs does not comply with the accruals concept. Therefore, the accounting treatment for all research expenditure is to write it off to the profit and loss account as incurred.This will not appear under non current assets.


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