4. CPA Finanical Accounting and Reporting Mod 4

XY Co. has development expenditure of $500 000. Its policy is to amortise development expenditure at 2 per cent per annum. Accumulated amortisation brought forward is $20 000. What is the amount shown in the statement of financial position at the year end for development expenditure?

• $470 000
• $480 000
• $490 000
• $500 000

Which of the following statements about research and development expenditure are correct according to IAS 38 Intangible Assets? I.     If certain conditions are met, an entity may decide to capitalise development expenditure. II.    Capitalised development expenditure must be amortised over a period not exceeding five years. III.  Research expenditure, other than capital expenditure on research facilities, must be written off as incurred. IV.  Capitalised development expenditure must be classified in the statement of financial position under intangible non-current assets.

• I and II only
• II and IV only
• III and IV only
• I, III and IV only

Which of the following should be capitalised as development expenditure?

• A Co. has incurred $140 000 investigating whether a newly identified plant has medicinal properties, and found that it does.
• B Co. has found that a particular chemical compound may be useful in combating flu. A number of large pharmaceutical companies are providing financial backing for B Co.
• C Co. has produced a prototype of a new product however trials in its use have revealed a number of flaws. C Co. is currently working on overcoming these flaws with little success.
• D Co. has spent $90 000 making a new fabric resistant to the sun's rays for use in children's clothing. Several large manufacturers are interested in the fabric which will be ready for production in the coming year.

In the current year High Co. has developed a new heat retaining fabric from which clothing suitable for high altitudes will be made. The project meets the IAS 38 criteria for capitalisation and by 30 June 20X8, $210 000 had been capitalised. The fabric is expected to generate revenue for 10 years from the date on which commercial production commenced on 1 November 20X7, although in the first year only half of the revenue of subsequent years is anticipated. What amount is charged to profit or loss in respect of the fabric in the year ended 30 June 20X8

• 7368
• $11 053
• $14 000
• $21 000

Cranford Co. has incurred $40 000 researching chemical compounds in the year ended 30 June 20X8. It has also spent $90 000 developing a new product. The product's development was completed on 28 February but management has decided to delay commercial production until July 20X8. The product is expected to have a useful life of five years. The development project meets the IAS 38 capitalisation criteria. How should these costs be treated in the year ended 30 June 20X8?

• $130 000 should be written off to profit or loss
• $46 000 should be written off to profit or loss and $84 000 recognised as an intangible asset
• $40 000 should be written off to profit or loss and $90 000 recognised as an intangible asset
• $100 000 should be written off to profit or loss and $30 000 recognised as an intangible asset

Which of the following four statements is correct?

• Capitalised development expenditure must be amortised over a period not exceeding five years.
• Capitalised development costs are classified in the statement of financial position as non- current assets.
• Amortisation of capitalised development expenditure will appear as an item in a company's statement of changes in equity.
• If all the conditions specified in IAS 38 Intangible Assets are met, the directors can choose whether to capitalise the development expenditure or not.

Which of the following are IAS 38 criteria which must be met in order to capitalise an intangible non-current asset? I.     The asset must be capable of separate disposal. II.    The asset must be within the control of the entity. III.  It is probable that future economic benefits will flow to the entity as a result of the asset.

• I and II only
• I and III only
• II and III only
• I, II and III

Which of the following is correct?

• An intangible asset must be amortised.
• Market share may be recognised as an intangible asset.
• Intangible assets with an indefinite useful life must be reviewed for impairment annually.
• Internally generated goodwill can be recognised in the financial statements by reference to the amount of purchased goodwill of a similar company.

Choc Co. acquires a chocolate bar brand from a competitor for $900 000 on 1 August 20X9. The brand is considered by Choc Co. to have a useful life of 25 years, and in order to maintain its market position, Choc Co. have, since acquisition, spent $100 000 on a marketing campaign. What intangible asset is recognised in Choc Co.'s statement of financial position at 31 December 20X9?

• $864 000
• $885 000
• $964 000
• $985 000

Clever Co. has incurred the following costs in the course of the year ended 30 June 20X9: ·      $400 000 training selected staff members to be 'World Class Knowledge Holders' (an internal qualification which is believed to result in increased sales). ·      $100 000 acquiring patents. ·      $200 000 advertising new products. The advertising is expected to result in a doubling of sales in the coming year. What amount should Clever Co. capitalise as an intangible asset in respect of these items in the year ended 30 June 20X9?

• $100 000
• $300 000
• $500 000
• $600 000