Question
In: Accounting
In the last two years, a company incurred the following expenditure in relation to the development...
In the last two years, a company incurred the
following expenditure in relation to
the development of a new product:
1 Jan 2013 – 31 Dec 2014 (2 years) £1,440,000
The criteria for recognition as an intangible asset were satisfied
from 1 Apr 2014.
For the year end, 31 Dec 2014, the intangible asset will be
recognized in
Statement of Financial Position at?
Solutions
Expert Solution
R&D cost, though it doesn't result in a tangible asset, it's benefit is spread through out the life of the products of the company. So it is only logical and in line with matching concept, that it be capitalised and amortised over the life of the product.
The same is supported by many accounting standards as well. (IFRS, USGAAP, IGAAP etc.)
They generally state a given time period to amortize the full cost (5 years), or if it can be computed to a reasonable accuracy, over any other period.
Under UKGAAP, however it is possible to choose between amortising the cost of R&D as non-current intangible asset and expensing it off.
The period of amortisation in any case starts from the beginning of production
If the ciriteria is satisfied on April 1st, 2014, then till December 31st, 2014, 9 months has elapsed and (as period is not given, taking by default the 5 years)
Amortisation for 2014 = 0.75 years/5 years * £1,440,000 = £216,000 in income statement
So WDV on December 31st, 2014 = £1,224,000 in balance sheet under Non-Current Intangible Asset
[on the other hand, it can all be written off in the income statement if need be]
ekkarill92 answered 1 year agoRelated Solutions
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