17. Which of the following could be classified as development expenditure in M’s statement of financial position as at 31 March 20Y0 according to IAS 38 Intangible Assets? A $120,000 spent on developing a prototype and testing a new type of propulsion system. The project needs further work on it as the system is currently not viable. B A payment of $50,000 to a local university’s engineering faculty to research new environmentally friendly building techniques. C $35,000 developing an electric bicycle. This is near completion and the product will be launched soon. As this project is first of its kind it is expected to make a loss. D $65,000 developing a special type of new packaging for a new energy‐efficient light bulb. The packaging is expected to reduce M’s distribution costs by $35,000 a year. 18. Which TWO of the following factors are reasons why key staff cannot be capitalised as an intangible asset by an entity? A They do not provide expected future economic benefits B They cannot be controlled by an entity C Their value cannot be measured reliably D They are not separable from the business as a whol
Question
- Which of the following could be classified as development expenditure in M’s statement of financial position as at 31 March 20Y0 according to IAS 38 Intangible Assets? A 50,000 to a local university’s engineering faculty to research new environmentally friendly building techniques. C 65,000 developing a special type of new packaging for a new energy‐efficient light bulb. The packaging is expected to reduce M’s distribution costs by $35,000 a year.
- Which TWO of the following factors are reasons why key staff cannot be capitalised as an intangible asset by an entity? A They do not provide expected future economic benefits B They cannot be controlled by an entity C Their value cannot be measured reliably D They are not separable from the business as a whol
Solution
- According to IAS 38 Intangible Assets, development expenditure can be classified in a company's statement of financial position if it meets certain criteria. These include the technical feasibility of completing the intangible asset, the intention to complete and use or sell it, the ability to use or sell it, the way in which the asset will generate future economic benefits, the availability of resources to complete it, and the ability to measure reliably the expenditure attributable to the intangible asset during its development.
A. This cannot be classified as development expenditure because the system is currently not viable, indicating that the technical feasibility of completing the intangible asset is not met.
B. This cannot be classified as development expenditure because the company does not have the ability to control the output of the research conducted by the university.
C. This can be classified as development expenditure because the project is near completion and the product will be launched soon. Even though it is expected to make a loss, it meets the criteria of intention to complete and use or sell it, and the ability to use or sell it.
D. This can be classified as development expenditure because the new packaging is expected to reduce the company's distribution costs, indicating that it will generate future economic benefits.
- According to IAS 38, an intangible asset must be identifiable, controlled by the entity, and provide future economic benefits.
A. This is a reason why key staff cannot be capitalized as an intangible asset because if they do not provide expected future economic benefits, they do not meet the criteria.
B. This is a reason why key staff cannot be capitalized as an intangible asset because if the entity cannot control them, they do not meet the criteria.
C. This is not necessarily a reason why key staff cannot be capitalized as an intangible asset. While it may be difficult to measure their value reliably, it is not impossible.
D. This is not necessarily a reason why key staff cannot be capitalized as an intangible asset. While they may not be separable from the business as a whole, this does not mean they cannot provide future economic benefits or be controlled by the entity.
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