Page 25 - MCS August Day 2 Tasks

ADVANCED FINANCIAL REPORTING (F2) ‐ PRACTICE TASKS

TASK 3 – RESEARCH & DEVELOPMENT

Trigger and task
You receive the following e‐mail

From: Chris Klet Non‐executive Director

To: Finance Manager

Subject: Research & Development (R&D) Department

I am aware that Montel spends a significant amount of time and expenditure on R&D activities
each year. Part of this activity is to ensure that we are aware of current technical developments
that we may be able to take advantage of in our manufacturing processes. Additionally we do try
to resolve practical technical and production problems to make our manufacturing processes
more efficient and improve the quality of our products.

I had a discussion this morning with Endo Karsa in this issue and he advised me that it there is a
financial reporting standard applied by accountants when preparing the annual financial
statements that govern how R&D costs should be accounted for.

Could you explain me the accounting requirements for accounting for R&D activities and how this
relates to the unique mounting bracket used in Professional DSLR cameras?

Additionally, the R&D department includes a number of highly qualified and experienced
individuals who would be difficult to replace should they decide to leave Montel for any reason.
Although Elaine has done much to improve employee retention, there is still an issue within the
R&D department of staff turnover being higher than I would like.

Endo did suggest that it may be possible to encourage their loyalty to Montel by establishing a
share option scheme for those employees. I have no idea what a share option scheme is.

Could you summarise the nature of a share option scheme and how this is accounted for in the
financial statements and whether this is likely to encourage employee retention?

Please have the memorandum available for my review by Monday 2.00pm.

Chris

Prepare a memorandum in response to Chris’s email. (45 minutes)

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