- 15 Marks
FR – L2 – Q30 – Intangible Assets
Show how R&D projects are accounted for in Henry Ltd's financial statements for 20X4, including capitalisation and amortisation.
Question
During 20X4 Kofi Ltd has the following research and development projects in progress.
Project A was completed at the end of 20X3. Development expenditure brought forward at the beginning of 20X4 was GH₵412,500 on this project. Savings in production costs arising from this project are first expected to arise in 20X4. In 20X4 savings are expected to be GH₵100,000, followed by savings of GH₵300,000 in 20X5 and GH₵200,000 in 20X6.
Project B commenced on 1 April 20X4. Costs incurred during the year were GH₵56,000. In addition to these costs a machine was purchased on 1 April 20X4 for GH₵30,000 for use on the project. This machine has a useful life of five years. At the end of 20X4 there were still some uncertainties surrounding the completion of the project.
Project C had been started in 20X3. In 20X3 the costs relating to this project of GH₵36,700 had been written off, as at the end of 20X3 there were still some uncertainties surrounding the completion of the project. Those uncertainties have now been resolved and a further GH₵45,000 costs incurred during the year.
Required
Show how the above would appear in the financial statements (including notes to the financial statements) of Kofi Ltd as of 31 December 20X4.
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