Problem: TuneIn Pty Ltd produces headphones using cutting edge technology. In 2010, the company started a new research and development program that finished at the end of 2011. Employees have a duty to maintain confidentiality. The following costs had been incurred
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Costs
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2010
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2011
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Obtaining knowledge
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$90,000
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Finding suitable material
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$140,000
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|
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Building pre-production prototype
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$56,000
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Testing the prototype
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$30,000
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Project Related Wages
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$46,000
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$59,000
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Advertising costs
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$5,000
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At the very beginning of 2011, the project had a significant breakthrough that finally caused the management to believe that all the costs of the project could be recouped in the future. TuneIn Pty Ltd's financial year end is 31 December.
Required:
Q1. How much of the costs over the life of the project can be capitalized and recognized as assets?
Q2. How much of the costs over the life of the project must be expensed?