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Problem 1
Luna Innovations Co's figures for research and development are as follows:
Item | Amount |
Research | $310,000 |
Development expenditure in the year | $260,000 |
Brought forward deferred development expenditure | $280,000 |
Written off deferred expenditure in the year | ? |
On 31 December 20X5, the balance carried forward for development expenditure was $340,000.
Note: Development expenditure is capitalised as an intangible asset because it meets all the recognition criteria.
Required
What amount will Luna Innovations Co charge to profit or loss for research and development for the year ended 20X5?
Problem 2
ABC’s research and development costs for the year ending 31 December 20X5 are as follows:
- Research: $350,000
- Development expenditure for the year: $150,000
- Deferred development expenditure brought forward: $200,000
- Written-off deferred expenditure during the year: ** (To be determined)
As of 31 December 20X5, the carried-forward balance for development expenditure is $300,000.
What is the amount ABC will expense for research and development in the profit or loss for 20X5?
Problem 3
GSK is a large pharmaceutical business involved in the research and development of viable new drugs. It commenced initial investigation into the viability of a new drug on 1 February 20X5 at a cost of $40,000 per month. On 1 August 20X5 GSK were able to demonstrate the commercial viability of the new drug and intend to sell it on the open market once fully complete.
Costs subsequent to 1 August 20X5 remained at $40,000 per month. At 31 December 20X5, GSK’s reporting date, the drug was not yet complete but it is believed that by mid-20X6 the drug will be available for sale.
The finance director is confident of the success of the drug’s sales that he wishes to revalue the intangible at the reporting date, using a discounted future cash flow model to establish the fair value.
Required
Explain the treatment of the above costs in GSK’s financial statements for the year-ended 31 December 20X5.
