Question

Question 1 Naca Pic incurred development expenditure amounting to K150,000 and ber 2014 respectively on the year ending 30 November 2013 and 30 Novem new produdt, Foodies, that the company has developed for two years now. The product will be ready fo sale on 31s December 2014. The figure shown under non-current assets in the financial pasition as at 31s December 2014 represents the total development expenditure to date of K350,000. The directors of Naca Plc, at 30m November 2013, estimated that 'Foodies' would generate total revenue of K400,000 over its economic life. They, at 30th November 2014, revised the figure to K500,000 owing to positive developments in the product's market. Estimates of costs to completion of product development are as follows: At 30 November 2013 At 30 November 2014 Required: K270,000 K70,000 Explain the appropriate adjustments required to correctly account for the development expenditure in the financial statements of Naca Plc for the year to 30 November 2014.

Answer 1

As per accounting standard 26 accounting for intangiable asset : Development amount should be capitalised as intangiable asset if it satisfies the recognisation criteria i.e there shall be future economic benifit and the cost is measurable.

as per the details provided in the question the future economic benifit is K 500,000 and the development expenditure amounted to K 350000.

as per prudence the asset shall be recognised at k 350000