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Patent TV antenna amplifier Todo embarked on a research and development project during the 2022 calendar year to develop a new TV antenna amplifier which will amplify the broadcasting signals to better the delivery of quality pictures to customers. At the completion of the research and development project, Todo registered a patent for this developed TV antenna amplifier with the Companies and Intellectual Property Commission (CIPC) of South Africa, for a period of 20 years. The patent was ready for use as intended by management, as well as brought into use on 1 August 2022.

Below are details of the costs incurred in the in-house research and development project of the TV antenna amplifier:

Phase 1 costs (Note 1) incurred 1 March 2022 to 31 March 2022 ................................... 150 000

Phase 1 costs (Note 1) incurred 1 April 2022 to 30 April 2022 ........................................ 170 000

Phase 2 costs (Note 2) incurred 1 May 2022 to 31 July 2022 .......................................... 1 400 000

Expected value of the 20-year-old patent (Note 3) ........................................................... 400 000

Note 1: Costs incurred in investigating the prospect of developing the TV antenna amplifier. These costs include costs incurred when performing research-related tasks.

Note 2: Costs incurred in the application of the research findings to develop the TV antenna amplifier. These costs meet the requirements for recognition as per IAS38, Intangible assets.

Note 3: A broadcasting expert was contacted by Todo on 1 August 2022, to estimate the value of the TV antenna amplifier patent and the end of the 20-year patented term. There is currently no open market for this type of patent nor is there a buyer committed to purchasing the patent in 20 years time.

The previous accountant of Todo accounted for the cost incurred during the research and development project of the TV antenna amplifier within the 2022 financial year, as follows:

Dr Research cost (P/L) ................................................................................... 150 000

cr Bank (SFP) ......................................................................................... 150 000

Recognition of research cost

Subsequently within the 2023 financial year, the previous accountant accounted for the costs incurred in relation to the entire research and development project of the TV antenna amplifier, as follows:

Dr Intangible assets Patent (SFP) ............................................................. 1 720 000

cr Bank (SFP) ......................................................................................... 1 570 000

Gain on capitalisation of previously expensed research cost (P/L) 150 000

Recognition of internally generated intangible asset

Depreciation expense (P/L) ..................................................................... 66 000

Accumulated amortisation Patent (SFP) .......................................... 66 000

Recognition of amortisation for the 2023 financial year (R1 720 000 - R400 000) / 20

The research and development project pertaining to the TV antenna amplifier was not approved by the Minister of Science and Technology and thus Todo will not receive any tax deduction on the developed patent in terms of section 11D of the Income Tax Act.

Prepare the correcting journal entry/entries (if any), in accordance with IAS 38: Intangible assets to account for the costs incurred in relation to the patent for the financial year ended 31 March 2023.

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