During 2018, Medicine Hat Tools Ltd., a Canadian public company, purchased a building site for its product development laboratory at a cost of $61,000. Construction of the building started in 2018. The building was completed in late December 2019 at a cost of $185,000 and placed in service on January 2, 2020. The building?s estimated useful life for depreciation purposes is 15 years. The straight-line method of depreciation is used and there is no estimated residual value. After the building went into service, several projects were begun and many are still in process.

Management estimates that about 50% of the development projects will result in long-term benefits (for at least 10 years) to the corporation. The other projects either benefited the current period or were abandoned before completion. A summary of the different projects, their number, and the direct costs that were incurred for development activities in 2020 appears in the table that follows.

On the recommendation of its research and development group, Medicine Hat Tools Ltd. acquired a patent for manufacturing rights at a cost of $102,500. The patent was acquired on April 1, 2019, and has an economic life of 10 years.

Instructions

a. How should the items above that relate to product development activities be reported under IFRS on the company?s income statement and statement of financial position at December 31, 2020? Be sure to give account titles and amounts, and briefly justify your presentation.

b. Outline the criteria that would have to be met for any development costs to qualify as an intangible asset.

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Salaries and Other Expenses (Excluding Building Depreciation Charges) Number of Projects Employee Benefits Development of viable products (management intent and capability, financial, technical, and commercial viability criteria were met) Abandoned projects or projects that benefit the current period only Projects in process–results uncertain $ 81,000 15 $125,000 21,000 18,500 10 87,000 52,500 30 Total $120,500 $264,500