Jason, Jim and Jones are the only shareholders of a private limited company, operating under the name Triple Jay Computers Ltd. They are manufacturers and dealers in both computer hardware and software. Their draft Statement of financial position, as at the end of the first year’s operations, is shown.

The company has incurred considerable costs on research and development activities and strongly advocates that the total cost of these activities should be reported as an asset. Their main concern is that if these costs are expensed they would be reporting an even worse performance.

Particulars of the amount reported as R&D costs are as follows:

Required:

(a) Advise the company on how the costs reported by them as R&D should be treated in accounts.

(b) Re-draft the Statement of financial position in compliance with your advice.

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Statement of financial position as at 30 June 2012 Non-current assets Development costs Current assets Share capital Retained loss Current liabilties £'000 2,050 980 824 3,854 £'000 4,000 (452) 3,548 306 3,854