Tram Limiteds statement of profit or loss and other comprehensive income for the year ended 31 December

Question:

Tram Limited’s statement of profit or loss and other comprehensive income for the year ended 31 December 2017 shows a charge of €450,000 for research and development. An analysis of this expenditure reveals the following.

€000 Cost of constructing warehouse and testing facility (four-year life) 90 Project High Speed 275 General research 85 450 Project High Speed is concerned with the development of a new, emergency braking system and has been well received by the market. Tram Limited has sold ten new systems in 2017, and customer enquiries suggest approximately 20 systems per annum should be sold over the next two years.

Requirement Show and explain how this expenditure should be treated in the 2017 financial statements of Tram Limited.

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