Examiner’s report – FR March/June 2021
13
amortisation from the date that the development expenditure
criteria was met rather
than from when the asset was available for use on 1 January 20X7).
Candidates who selected $7m charged a full year of amortisation with no pro-rating
at all.
Candidates who selected $10m ignored the initial research expense which should
have been charged to the statement of profit or loss and wrote off the entire $10m of
development expenditure.
Question 4
What is the correct answer?
Statement 1 – True
Statement 2 – False
Statement 3 – False
In accordance with IAS 38 Intangible Assets, which of the following is/are true
or false in respect of the accounting treatment of projects 325 and 326?
accounting treatment of projects 325 and 326?
Examiner’s report – FR March/June 2021
14
Where did candidates go wrong?
Candidates needed to select the correct option for all three statements to be
awarded credit.
Most candidates knew that statement 1 was true – if the cost were not expensed to
the statement of profit or loss it would be capitalised on
the statement of financial
position as an asset, which would not be appropriate for an abandoned research
project.
Although most candidates selected the correct response for each of the three
statements, the second most common response was to select statement 2 as being
true which is incorrect. IAS 16
Property, Plant and Equipment would apply to the
specialist equipment used in project 325. In accordance with IAS 16, depreciation of
the asset would begin when it was available for use. As it was being used for this
project, then it should be depreciated and it makes no difference that the project was
abandoned.
Statement 3 tested how well candidates know the requirements for the development
phase of an internally generated intangible asset (i.e. when it meets the criteria to be
capitalised as an asset on the statement of financial position). The
requirements for
this are quite strict and prescriptive, including being able to demonstrate how the
intangible asset will generate probable future economic benefits. Since the directors
were not confident of the success of the
project at the year end, it would not have
been possible to recognise this project as an intangible asset and any costs incurred
should instead be expensed to the statement of profit or loss.
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