Show all the costs that would be classified as costs incurred during the research phase in terms of IAS 38 – Intangible assets. Provide a brief reason as to why these costs would be classified as such.
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Curios Creatives Ltd (CC) is a company specialising in UI and UX design. In the financial year ended
30 June 2021, the CC commenced development of a running application that can be fully
integrated on all types of smartphones, smart watches, and smart gear.
The following expenditures were incurred in respect of the running application in the current
financial period:
Testing of designs R350 000
Developer Salaries * R400 000
General overhead expenditure R155 000
Legal costs associated with the sale of the application** R 70 000
Technical feasibility testing *** R 85 000
Training of Staff to manage application R35 000
*Developer salaries are the salaries paid to the software developers during the design stage of the
application.
** Legal costs include VAT
*** Technical feasibility testing costs include the staff members that came in on the weekend
while the directors did a trial run to test the calibration of the app.
After the weekend trial run, the board of directors have assessed that the technology contained in
the application will result in it having an indefinite useful life.
Required:
Q.3.1 Show all the costs that would be classified as costs incurred during the research
phase in terms of IAS 38 – Intangible assets. Provide a brief reason as to why
these costs would be classified as such.
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- Self-Construction Olson Machine Company manufactures small and large milling machines. Selling prices of these machines range from 35,000 to 200,000. During the 5-month period from August 1, 2019, through December 31, 2019, Olson manufactured a milling machine for its own use. This machine was built as part of the regular production activities. The project required a large amount of time front planning and supervisory personnel, as well as that of some of the companys officers, because it was a more sophisticated type of machine than the regular production models. Throughout the 5-month period, Olson charged all costs directly associated with the construction of the machine to a special account entitled Asset Construction Account. An analysis of the charges to this account as of December 31, 2019, follows: Olson allocates factory overhead to normal production as a percent of direct labor dollars as follows: Olson uses a flat rate of 40% of direct labor dollars to allocate general and administrative overhead. During the machine testing period, a cutter head malfunctioned and did extensive damage to the machine table and one cutter housing. This damage was not anticipated and was the result of an error in the assembly operation. Although no additional raw materials were needed to make the machine operational after the accident, the following labor for rework was required: Olson has included all these labor charges in the asset construction account. In addition, it included in the account the repairs and maintenance charges of 1,340 that it incurred as a result of the malfunction. Required: 1. Compute, consistent with GAAP and common practice, the amount that Olson should capitalize for the milling machine as of December 31, 2019, when it declares the machine operational. 2. Next Level Identify the costs you included in Requirement 1 for which there are acceptable alternative procedures. Describe the alternative procedure(s) in each case.Curios Creatives Ltd (CC) is a company specialising in UI and UX design. In the financial year ended30 June 2021, the CC commenced development of a running application that can be fullyintegrated on all types of smartphones, smart watches, and smart gear.The following expenditures were incurred in respect of the running application in the currentfinancial period:Testing of designs R350 000Developer Salaries * R400 000General overhead expenditure R155 000Legal costs associated with the sale of the application** R 70 000Technical feasibility testing *** R 85 000Training of Staff to manage application R35 000*Developer salaries are the salaries paid to the software developers during the design stage of theapplication.** Legal costs include VAT*** Technical feasibility testing costs include the staff members that came in on the weekendwhile the directors did a trial run to test the calibration of the app.After the weekend trial run, the board of directors have assessed that the technology…XYZ has spent $15,000 researching new cleaning liquids in the year ended 31 December 2014. It has also spent $20,000 developing a new cleaning product which will not go into commercial production until next year. The development project meets the criteria laid down in IAS 38.
- Bianca Company incurred the following costs during 2021:- Testing in search for process alternative = 230,000- Adaptation of an existing capability to a particular requirement or customer's need = 140,000- Design, construction, and testing of pre-production prototypes and models = 120,000- Routine design of tools, jigs, molds, and dies = 125,000 Required:How much is the research and development expense in 2021?The Microcrit Division of Siliton Computers produces computer chips that aresold to the Personal Computer Division and to outsiders. Operating data for the Microcrit Division for 2020 are as follows: Internal Sales External Sales Sales: 300,000 chips @ $10 $3,000,000 200,000 chips @ $12 $2,400,000 varibale expense @ $4 $1,200,000 $800,000 contribution margin $1,800,000 $1,600,000 fixed costs (allocated in units) 1,500,000 1,000,000 operating income $300,000 $600,000 The Personal Computer Division has just received an offer from an outsidesupplier to furnish chips at $8.90 each. The manager of Microcrit Division is notwilling to meet the $8.90 price. She argues that it costs her $9.00 to produceand sell each chip. Sales to outside customers are at a maximum of 200,000 Page 6 of 6chips.Required:a. Verify the Microcrit Division's $9.00 unit cost figure.b. Should the Microcrit Division meet the outside price of $8.90? Explain.c. Could the $8.90 price be met…During 2020, Pitt Corporation incurred costs to develop and produce a routine, low- risk computer software product as follows:Completion of detailed program design 130,000Costs incurred for coding & testing to establish technological feasibility 100,000 Other coding costs after establishment of technological feasibility 240,000Other testing costs after establishment of technological feasibility 200,000Cost of producing product masters for training materials 150,000Duplication of computer software and training materials from productmasters (1,000 units) 250,000Packaging…
- NXS Semiconductor prepares its financial statements according to International Financial Reporting Standards.The company incurred the following expenditures during 2018 related to the development of a chip to be used inmobile devices:Salaries and wages for basic research $3,450,000Materials used in basic research 330,000Other costs incurred for basic research 1,220,000Development costs 1,800,000Legal and filing fees for a patent for the new technology 50,000The development costs were incurred after NXS established technological and commercial feasibility and afterNXS deemed the future economic benefits to be probable. The project was successfully completed, and the newchip was patented near the end of the 2018 fiscal year.Required:1. Which of the expenditures should NXS expense in its 2018 income statement?2. Explain the accounting treatment of the remaining expenditures.A new set of financial managers are hired to Holland Company, a manufacturing-concern entity that produces Product A. The financial managers are now planning the operations for 2022. They are currently doing the sales and production budget of the entity. Upon inspecting the financial records of the entity, they found at that each unit of Product A utilizes three kinds of materials – Material X, Material Y, and Material Z. To produce each unit of Product A, three units of Material X, 2 units of Material Y, and 4 units of Material Z are needed. It also needs 2.5 direct labor hours to manufacture each unit. Factory overhead is applied at 50% of direct labor costs. As the usual practice, the entity is preparing the budget on a quarterly basis. For the 4th quarter of 2021, the entity was able to sell 120000 units of Product A at an average price of P400 per unit. Because the new set of financial managers are confident that the company can do more, they are targeting to increase units sold…Precision Equipment, Inc., specializes in designing and installing customized manufacturing equipment. On February 1, 2018, it signs a contract to design a fully automated wristwatch assembly line for $2 million, which willbe settled in cash upon completion of construction. Precision Equipment will install the equipment on the client’sproperty, furnish it with a customized software package that is integral to operations, and provide consulting services that integrate the equipment with Precision’s other assembly lines. How many performance obligations existin this contract?
- During 2020, TULIP Corporation incurred costs to develop and produce a routine, low-risk computer software product as follows: Packaging product (500 units) -₱90,000; Duplication of computer software and training materials from product masters (1,000 units) -₱250,000; Completion of detailed program design -₱130,000; Cost of producing product masters for training materials -₱150,000; Other testing costs after establishment of technological feasibility -₱200,000; Costs incurred for coding and testing to establish technological feasibility -₱100,000; Other coding costs after establishment of technological feasibility -₱240,000. In TULIP's December 31, 2020 statement of financial position, what amount should be capitalized as software cost subject to amortization?During 2020, TULIP Corporation incurred costs to develop and produce a routine, low-risk computer software product as follows: Packaging product (500 units) -₱90,000; Duplication of computer software and training materials from product masters (1,000 units) -₱250,000; Completion of detailed program design -₱130,000; Cost of producing product masters for training materials -₱150,000; Other testing costs after establishment of technological feasibility -₱200,000; Costs incurred for coding and testing to establish technological feasibility -₱100,000; Other coding costs after establishment of technological feasibility -₱240,000. In TULIP's December 31, 2020 statement of financial position, what amount should be capitalized as software cost subject to amortization? * a. ₱ 570,000 b. ₱ 690,000 c. ₱ 540,000 d. ₱ 590,000XYZ Company made expenditures for the following: Costs in activities aimed at obtaining new knowledge P 10,000 Cost of developing and producing a prototype model 3,000 Cost of testing the prototype model for safety and environmental friendliness 30,000 Cost of revising designs for flaws in the prototype model 10,000 Salaries of employees, consultants and technicians involved in R and D 20,000 Marketing research to study consumer tastes 5,000 Advertising to establish recognition of the newly developed product 30,000 Cost of conference for the introduction of the newly developed product including fee of a model hired as endorser How much is recognized as research and development expense? _____________