ExpertEasy2 marksMultiple Choice
ACCA · Question 05 · Intangible Assets
Section A
NeuroTech is developing a new neural-interface device. During the year ended 31 December 20X5, it incurred the following costs:
- $200,000 on initial feasibility studies (Jan-Mar)
- $500,000 on developing a working prototype (Apr-Aug)
- $300,000 on final testing and regulatory approval (Sep-Dec)
Management confirmed the project met all capitalization criteria under IAS 38 on 1 September 20X5.
How much should be capitalized as an intangible asset for the year ended 31 December 20X5?
Section A
NeuroTech is developing a new neural-interface device. During the year ended 31 December 20X5, it incurred the following costs:
- $200,000 on initial feasibility studies (Jan-Mar)
- $500,000 on developing a working prototype (Apr-Aug)
- $300,000 on final testing and regulatory approval (Sep-Dec)
Management confirmed the project met all capitalization criteria under IAS 38 on 1 September 20X5.
How much should be capitalized as an intangible asset for the year ended 31 December 20X5?
Answer options:
A.
$300,000
B.
$800,000
C.
$1,000,000
D.
$0
How to approach this question
Identify the exact date the PIRATE criteria under IAS 38 were met. Only costs incurred on or after this date can be capitalized.
Full Answer
A.$300,000✓ Correct
Under IAS 38 Intangible Assets, development costs can only be capitalized from the date all recognition criteria are met. Costs incurred prior to this date must be expensed and cannot be reinstated as assets later. The criteria were met on 1 September, so only the $300,000 incurred from Sep-Dec is capitalized.
Common mistakes
Capitalizing the prototype costs retrospectively once the project is deemed successful.
Practice the full ACCA FR — Financial Reporting Practice Exam 4
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