ExpertEasy2 marksMultiple Choice
ACCA · Question 05 · Recording Transactions: Intangible Assets
Section A
CodeCrafters Ltd is developing a new proprietary software platform. During the year, they incurred $50,000 in early-stage research costs and $120,000 in development costs after the project was deemed commercially viable, technically feasible, and fully funded.
How should these costs be treated in the financial statements for the year?
Section A
CodeCrafters Ltd is developing a new proprietary software platform. During the year, they incurred $50,000 in early-stage research costs and $120,000 in development costs after the project was deemed commercially viable, technically feasible, and fully funded.
How should these costs be treated in the financial statements for the year?
Answer options:
A.
Capitalize the entire $170,000 as an intangible asset.
B.
Expense the entire $170,000 to profit or loss.
C.
Expense $50,000 to profit or loss; Capitalize $120,000 as an intangible asset.
D.
Capitalize $50,000 as an intangible asset; Expense $120,000 to profit or loss.
How to approach this question
Apply IAS 38 Intangible Assets rules. Research phase costs are always expensed. Development phase costs are capitalized only when specific criteria (PIRATE) are met.
Full Answer
C.Expense $50,000 to profit or loss; Capitalize $120,000 as an intangible asset.✓ Correct
Under IAS 38, research costs ($50,000) must be expensed to the statement of profit or loss as incurred. Development costs ($120,000) must be capitalized as an intangible asset once the commercial and technical feasibility criteria are met.
Common mistakes
Capitalizing research costs or expensing valid development costs.
Practice the full ACCA FA — Financial Accounting Practice Exam 5
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