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ACCA Applied Knowledge · Financial Accounting · Intangible non-current assets and amortisation

Dalton Co incurred the following costs during the year ended 31 December 20X5 on developing a new software product: research into feasibility, $40,000 (incurred January to March); development costs, $90,000 (incurred from 1 April, after all IAS 38 recognition criteria were first met on that date). Dalton also spent $15,000 on staff training and $10,000 on an advertising campaign for the product. What amount should be capitalised as an intangible asset at 31 December 20X5, before any amortisation?

The amount to capitalise is $90,000. Only development expenditure incurred after the IAS 38 recognition criteria are met can be recognised as an intangible asset. Research, staff training and advertising costs must all be written off to profit or loss as incurred.

  1. A$90,000Correct
  2. B$130,000
  3. C$115,000
  4. D$155,000

Explanation

Research ($40,000) must be expensed. Development costs are capitalised only from the date the IAS 38 criteria are met, so $90,000 qualifies. Training ($15,000) and advertising ($10,000) are expensed as they cannot be capitalised. Adding research ($130,000) wrongly includes it; adding training ($115,000) or all costs ($155,000) ignores the prohibition on capitalising these items.

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