Stark Ltd manufactures components for audio-visual systems andon 1 August 2017 commenced a project...

50.1K

Verified Solution

Question

Accounting

Stark Ltd manufactures components for audio-visual systems andon 1 August 2017 commenced a project to design a more effectivemotion-sensing system. The following expenditures were outlaidduring the course of research and development.

During September 2017, Stark Ltd paid $319,000 in salaries ofcompany engineers and consultants to conduct tests onmotion-sensing systems currently available in the market, with aview to making possible modifications and obtaining theknowledge.

During November 2017, A new motion-sensing system was designed anda basic model produced at a cost of $215,000. This model wasdetermined to be unsatisfactory as the materials of which it wasmade were not suitable.

During January 2018, a further $101,000 was incurred in costs forthe new motion-sensing system. Stark Ltd purchased a software forthe motion-sensing system at a cost of $93,000.
During April 2018, Stark Ltd spent a further $230,000 toincorporate the new material into the design of the newmotion-sensing system. By 30 April 2018, Stark Ltd was convinced itnow had a viable product, because preliminary tests showed that thenew motion-sensing system was far superior to any other availableon the market.

During May 2018, Stark Ltd developed a prototype of themotion-sensing system and proceeded to test it with a variety ofmodels of audio visual systems for which they provided components.By the end of May, the motion-sensing system proved to worksuccessfully with the majority of the audio-visual systemsavailable on the market and for which Stark Ltd suppliedcomponents. Further costs of $112,000 were incurred in thisprocess. Additional costs of $38,000 were incurred for theworkshops to train their manufacturing engineers with the newlydeveloped motion-sensing system.

During June 2018, after receiving positive feedback from theirmanufacturing engineers of audio visual systems, Stark Ltd decidedin June that they had a successful model and commenced planningproduction of the motion-sensing systems. Expenditures in Juneincluded $40,000 to display and demonstrate the new model toprospective purchasers.
Required:
Explain how you would determine the accounting treatment for theitems of expenditures mentioned above. Determine and state theitems which would be expensed and those which would be capitalised.Provide your reasons in accordance with AASB 138
this is Financial Accounting (from Australia). the AASB 138 canbe find online:https://www.aasb.gov.au/Pronouncements/Current-standards.aspx
then select 138 to check

Answer & Explanation Solved by verified expert

3.9 Ratings (706 Votes)

ANSWER 1 Expenditure on Salaries of Engineers and Consultants Will be Expensed as it was Incurred During the Reseach Phase When Economic Benefits for the Produts was not Sure 2 The Amount 215000 That was Spent on Basic Model but the Model See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

In: AccountingStark Ltd manufactures components for audio-visual systems andon 1 August 2017 commenced a project to...Stark Ltd manufactures components for audio-visual systems andon 1 August 2017 commenced a project to design a more effectivemotion-sensing system. The following expenditures were outlaidduring the course of research and development.During September 2017, Stark Ltd paid $319,000 in salaries ofcompany engineers and consultants to conduct tests onmotion-sensing systems currently available in the market, with aview to making possible modifications and obtaining theknowledge.During November 2017, A new motion-sensing system was designed anda basic model produced at a cost of $215,000. This model wasdetermined to be unsatisfactory as the materials of which it wasmade were not suitable.During January 2018, a further $101,000 was incurred in costs forthe new motion-sensing system. Stark Ltd purchased a software forthe motion-sensing system at a cost of $93,000.During April 2018, Stark Ltd spent a further $230,000 toincorporate the new material into the design of the newmotion-sensing system. By 30 April 2018, Stark Ltd was convinced itnow had a viable product, because preliminary tests showed that thenew motion-sensing system was far superior to any other availableon the market.During May 2018, Stark Ltd developed a prototype of themotion-sensing system and proceeded to test it with a variety ofmodels of audio visual systems for which they provided components.By the end of May, the motion-sensing system proved to worksuccessfully with the majority of the audio-visual systemsavailable on the market and for which Stark Ltd suppliedcomponents. Further costs of $112,000 were incurred in thisprocess. Additional costs of $38,000 were incurred for theworkshops to train their manufacturing engineers with the newlydeveloped motion-sensing system.During June 2018, after receiving positive feedback from theirmanufacturing engineers of audio visual systems, Stark Ltd decidedin June that they had a successful model and commenced planningproduction of the motion-sensing systems. Expenditures in Juneincluded $40,000 to display and demonstrate the new model toprospective purchasers.Required:Explain how you would determine the accounting treatment for theitems of expenditures mentioned above. Determine and state theitems which would be expensed and those which would be capitalised.Provide your reasons in accordance with AASB 138this is Financial Accounting (from Australia). the AASB 138 canbe find online:https://www.aasb.gov.au/Pronouncements/Current-standards.aspxthen select 138 to check