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Intacct3: Assignment Item #1: (JG Company)

JG Company incurred research and development costs between 2013-2015 for a new product. For the fiscal year ending June 30, 2015: 1. The intangible asset is valued at Ᵽ10.42 billion, including development costs and a portion of equipment depreciation. 2. Amortization expense is Ᵽ521 million based on the 10-year shelf life. 3. Depreciation expense on equipment is Ᵽ20 million from January to June 2015. 4. Research and staff training costs of Ᵽ720 million are expensed.

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41 views

Intacct3: Assignment Item #1: (JG Company)

JG Company incurred research and development costs between 2013-2015 for a new product. For the fiscal year ending June 30, 2015: 1. The intangible asset is valued at Ᵽ10.42 billion, including development costs and a portion of equipment depreciation. 2. Amortization expense is Ᵽ521 million based on the 10-year shelf life. 3. Depreciation expense on equipment is Ᵽ20 million from January to June 2015. 4. Research and staff training costs of Ᵽ720 million are expensed.

Uploaded by

Kristen Stewart
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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MPR INTACCT3: ASSIGNMENT

ITEM #1: (JG COMPANY)

JG Company commenced research work on a new product on July 1, 2013 and entered

the development phase on July 1, 2014. Related to this, the following costs were

incurred and accumulated for in the books as capital work in progress.

Fiscal Year ending June 30


2014 2015
Research Cost Ᵽ 600,000,000
Development Cost 300,000,000 Ᵽ 10,000,000,000
Training of technical staff 700,000,000
Cost of laboratory equipment 200,000,000
Cost of trial run 400,000,000
TOTAL Ᵽ 1,100,000,000 Ᵽ 11,100,000,000

1. Criteria for recognition of internally generated intangible asset has been met.

Commercial production started from January 1, 2015. It is estimated the related

product will have a shelf life of 10 years.

2. Laboratory Equipment was purchased on January 1, 2014, with an estimated

useful life of 5 years. Treatment of depreciation expense on the laboratory

equipment will differ before and after development phase.

Explain the accounting treatment of above in the financial statement for the fiscal year

ending June 30, 2015, in the following order:

1.Value of intangible asset at initial measurement, with explanations.


2. Amortization of intangible asset at year-end
3. Chargeable as depreciation expense, if any
4. Chargeable as research and other expenses, if any
1. Given that the new product meets all conditions for development, it should be

recognized as an intangible asset.

Cost Incurred During Development Ᵽ 10,000,000,000

Depreciation On Laboratory Equipment (200,000,000 /5 x 50%) 20,000,000

Cost Of Trial Run 400,000,000

VALUE OF INTANGIBLE ASSET AT INITIAL MEASUREMENT Ᵽ 10,420,000,000

NOTE:

*Cost of trial run is included since it is a directly attributable cost of testing whether

the asset is functioning properly.

*Depreciation on the laboratory equipment is included since it is a directly

attributable cost used and consumed in generating the intangible asset.

*Costs associated with research work are not allowed to be capitalized under IAS-

38. As a result, these expenses should be recorded in the profit and loss account for

the period in which they occur. However, because research costs of 600 million,

development costs of 300 million, and laboratory equipment depreciation of 40

million were all for the fiscal year 2014, comparative figures for the year ended June

30, 2015 should be clarified and retained earnings adjusted for these amounts.

*Staff training costs are likewise not allowed to be capitalized and must be applied to

the profit and loss statement for the fiscal year ending June 30, 2015.
*Depreciation of 40 million on laboratory equipment should be recorded to the profit

and loss account for the year ended June 30, 2015, from the start of commercial

production on January 1 to June 30, 2015.

2. Since the product has a shelf life of 10 years, the amortization expense can be

calculated by:

Value of Intangible Asset Ᵽ 10,420,000,000

Divided by: Shelf Life 10 years

Multiply: 6/12 (June 30, 2014-January 1, 2015) 50%

AMORTIZATION EXPENSE - JUNE 30, 2015 Ᵽ 521,000,000

3. Since the product started its commercial production by January 1, 2015, the

depreciation expense can be calculated by:

Value of Laboratory Equipment Ᵽ 200,000,000

Divided by: Useful Life 5 years

Multiply: 6/12 (January 1, 2015 – June 30, 2015) 50%

DEPRECIATION EXPENSE - JUNE 30, 2015 Ᵽ 20,000,000

NOTE: The cost recognition of the laboratory equipment should be as tangible asset

since it has useful life of more than one year and depreciated over its useful life of 5

years.
4. The following are chargeable under research and other expenses:

Training of Technical Staff Ᵽ 700,000,000

Depreciation On Laboratory Equipment (200,000,000 /5 x 50%) 20,000,000

RESEARCH AND OTHER EXPENSES Ᵽ 720,000,000

ITEM #2 (LOLLY’S LIMITED)

Please explain each of the situations below which could or could not be capitalized as

an intangible asset in Lolly’s Limited statement of financial position on June 30, 2018

according to PAS 38.

A. Ᵽ 100,000 spent on developing a prototype and testing a new type of special

equipment expected to double the production output. The project is in need of

further research as result of the testing is not satisfactory.

B. A cost incurrence of Ᵽ 100,000 to a local university's engineering resources to

further the research.

C. Ᵽ 30,000 cost of completing an auxiliary equipment to be launched soon. The

auxiliary equipment is of high maintenance and may result to the company’s

loss incurrences.

D. Ᵽ 80,000 developing a special type of pick and place system to improve the

packaging cycle time of the company and reduced cost. The system is near

completion and is 80% viable.


(A) Attributed to the reason that it does not match all of the conditions, item (A)

cannot be capitalized. Considering that the special equipment is projected to

double the production output, the project requires additional investigation due to

the fact that the testing has not been adequate.

(B) Since research is not capitalized by International Accounting Standards (IAS-

38), this item is not recognized as an intangible asset in the financial statement.

(C) Given the fact that it does not fit all of the criteria, this item cannot be

capitalized as an intangible asset. Additionally, the development of the auxiliary

equipment requires a high level of maintenance and can result in additional

losses for the company. Therefore, it does not meet the criteria of generating

future economic benefit.

(D) The development of a special type of pick and place system amounting to Ᵽ

80,000 can be capitalized as an intangible asset because it achieves all the

essential criteria. Furthermore, the said system has the potential to enhance

even further by lowering costs, and the development is entirely feasible and close

to completion.

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