Page 195 - F1 Integrated Workbook STUDENT 2018

Non-current assets – IAS 23, IAS 38 & IAS 36

Solution

(a) Development expenditure can only be regarded as an intangible if it
meets the criteria of IAS 38. If the criteria is not met the cost must be
written off as an expense to the statement of profit or loss. The criteria
the standard requires to be met in order to be able to capitalise the cost
are as follows:

 the technical feasibility of completing the intangible asset so that it can
be used or sold

 the intention to complete the asset to use it or sell it

 the ability to use or sell the asset

 that the asset will in fact generate probable future economic benefit –
does a market exist for the asset if it is to be sold, or can the asset’s
usefulness be proven if the asset is to be used internally

 that it has the technical, financial and other resources to complete the
project to make and use or sell the asset

 that it can measure the expenditure on the development of the asset
reliably in order to incorporate the amount in the financial statements.

(b) All of the above criteria seem to have been met by CD’s new process:

 it is technically feasible, it has been tested and is about to be
implemented

 it has been completed and CD intends to use it

 the new process is estimated to increase output by 15% with no
additional costs other than direct material costs

 the expenditure can be measured as the figures have been given.

CD will treat the $180,000 development cost as an intangible noncurrent asset
in its statement of financial position at 30 April 20X1.

Amortisation will start from 1 May 20X1 when the new process starts
operation.

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