Question

Tech-Guru Inc. begins to develop a computer software program that can be sold to the public.

During the current year, costs of $270,000 are incurred to arrive at the point of technological feasibility (a working model is available).

Another $130,000 is then spent to turn that working model into a product that can be sold.

Which of the following statements is true?

A) $400,000 should be recorded as an expense in this year.

B) $400,000 should be recorded as an asset to be reported on the company's balance sheet.

C) $270,000 should be recorded as an asset and the $130,000 should be recorded as an expense.

D) $270,000 should be recorded as an expense and the $130,000 should be recorded as an asset.

Answer 1

Correct answer is option D.

Because as per IAS 38, charge all research cost to expense. Development costs are capitalised only after technical and commercial feasibility of the asset for sale or use have been established.

Therefore $ 270,000 will be recorded as expense and $130,000 should be recorded as asset.

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