Question 3 You have been given the following financial data of a research project from the chief...

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Accounting

Question 3
You have been given the following financial data of a researchproject from the chief researcher of Balloon Ltd:
$
Cost to date (pure research 25%, applied research 75%)600,000
Cost to develop the product in 2018 900,000
Expected future sales per annum in 2019 3,000,000
Fixed assets purchased in 1 January 2018 for the project:
Cost 7,500,000
Estimated useful life 5 years
Residual value 120,000
The board of directors considers this project to be similar toother projects that the company has undertaken and is confident ofa successful outcome.
The company has sufficient resources to complete development andhas sufficient capacity to produce the product.
Required:
a Prepare a report to the board outlining the principlesinvolved in accounting for research and development, and
showing what accounting entries need to be made in the financialyear 2018.
b Explain what factors need to be taken into account whenassessing a research and development project for accountingpurposes and
what disclosures are needed for research and development inBalloon’s financial statements.

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3.6 Ratings (643 Votes)

a Under US Generally Accepted Accounting Principles GAAP Accounting Standards Codification ASC 730 Research and Development since future economic benefits are uncertain it is generally difficult to classify RD costs as assets The definition of Research and Development is given as below Research is planned See Answer

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Question 3You have been given the following financial data of a researchproject from the chief researcher of Balloon Ltd:$Cost to date (pure research 25%, applied research 75%)600,000Cost to develop the product in 2018 900,000Expected future sales per annum in 2019 3,000,000Fixed assets purchased in 1 January 2018 for the project:Cost 7,500,000Estimated useful life 5 yearsResidual value 120,000The board of directors considers this project to be similar toother projects that the company has undertaken and is confident ofa successful outcome.The company has sufficient resources to complete development andhas sufficient capacity to produce the product.Required:a Prepare a report to the board outlining the principlesinvolved in accounting for research and development, andshowing what accounting entries need to be made in the financialyear 2018. b Explain what factors need to be taken into account whenassessing a research and development project for accountingpurposes andwhat disclosures are needed for research and development inBalloon’s financial statements.