Question

Question 3

Whispering Winds, Inc., a private company that applies ASPE, incurred $14,400 in materials and $12,700 in direct labour costs between January and March 2017 to develop a new product. In May 2017, the criteria required to capitalize development costs were met. A further $49,400 was spent for materials, $16,200 for direct labour costs, $3,100 for borrowing costs, and $66,100 for directly related legal fees.

Prepare the appropriate journal entries. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
(Whispering Winds chooses to expense all costs.)

(Whispering Winds chooses to capitalize all costs.)

Prepare journal entry if Whispering Winds waere a public company following IFRS. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

Answer 1

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Note The cost of to developa product shall be considered as expense unless the technical feasibility' criteria is met. The asset arising from development of product shall be recognised as 'Capital Asset' only when all the following criteria are met, 1. Technical Feasibility of completion to make it available for sale or use 2. Intention to complete the process and use or sell it 3. Demonstration of the asset that it will generate future economic benefits 4. Availability of resources to complete the development 5. Ability to measure cost reliably The cost incurred before technical feasibility is met are accounted as 'Expenses' and transferred to 'profit &loss' In case of Whispering Winds Inc, the cost of Material - $14,400 and Labour - $12,700 Journal Entries Journal Entries (Method 2) When incurred and accounted to relevant head, then (Method 1) When incurred in Cash Date/ Peri Jan Mar Profit & Loss Date/ Period Particulars Particulars Debit Credit Debit Credit Jan Mar Profit & Loss $ 27,100 27,100 $ $14,400 To Cash 27,100 To Materials $ 12,700 To Direct Labour (To record expenses incurred for development of asset before criteria is (To record expenses incurred for |development of asset before criteria is met) Capital Asset May $ 134,800 met) Capital Asset May $134,800 $ 134,800 To Cash $ 49,400 $ 16,200 $ 3,100 To Materials (To record directly attributable cost of To Direct Labour asset capitalised after technical To Borrowing Cost feasibility is met) $ 66,100 To Legal Fees (To record directly attributable cost of asset capitalised after technical feasibility is met)