Question 1

SECTION B - CASE 1: AeroTech Drones

AeroTech Drones Co manufactures specialized agricultural drones. The year-end is 31 December 20X5.
During 20X5, AeroTech incurred the following costs on a new drone project ('AgriFly'):
- 1 Jan to 30 Jun: $400,000 on initial research and feasibility studies.
- 1 Jul to 31 Oct: $600,000 on development. Commercial viability and technical feasibility were established on 1 July.
- 1 Nov to 31 Dec: $200,000 on final testing and production setup.
The AgriFly drone was ready for use on 31 December 20X5.

Under IAS 38 Intangible Assets, what amount should be capitalized as an intangible asset for the AgriFly project in the year ended 31 December 20X5?

Accepted Answer

Identify the date when the capitalization criteria (PIRATE) were met. Capitalize all directly attributable development costs incurred from that date until the asset is ready for use. Expense all prior costs.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Capitalizing research costs, or failing to capitalize the final testing costs.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 1

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