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

Zeta Co spent $40,000 on research into a new process in the year ended 31 December 20X5. From 1 October 20X5 it spent a further $90,000 on development, and all IAS 38 capitalisation criteria were met from that date. The asset was not yet available for use at 31 December 20X5. What total amount is charged to profit or loss for the year in respect of this project?

The charge to profit or loss is $40,000. Research costs are expensed, while the $90,000 development costs meet the capitalisation criteria and are carried as an intangible asset. No amortisation arises yet because the asset is not available for use at the year end.

  1. A$130,000
  2. B$40,000Correct
  3. C$90,000
  4. D$0

Explanation

Research of $40,000 is expensed. Development of $90,000 meets the criteria from 1 October, so it is capitalised. No amortisation is charged because the asset is not yet available for use. Total charge is $40,000; $130,000 wrongly expenses everything.

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