Can someone explain to me how we get the numbers on the table on a step by step basis?

9. Albert Hein is a Dutch company. It invests in research and development (R&D), with an accounting policy to expense all R&D expenditures immediately. The expenditures in 2007 to 2010 were as follows: Year: R&D expenditure (000's): 2007 6.00 2008 4.50 2009 12.75 2010 9.75 The company uses IFRS for financial reporting. Its balance sheets as of 31 December 2010 and 2009 are as follows (amounts in 000's): 2010 2009 225.0 175.0 62.5 50.0 Balance Sheet Noncurrent assets Property, plant & equipment at NBV Goodwill & other intangibles Current assets Trade receivables Cash Total Assets 75.0 102.5 25.0 65.0 387.5 392.5 100.0 87.5 22.5 55.0 Noncurrent liabilities Bonds payable Deferred tax liability Current liabilities Trade payables Interest payable Total Liabilities 57.5 42.5 20.0 10.0 200.0 195.0 Share capital and premium 137.5 150.0 Retained earnings 50.0 47.5 Total Shareholders Equity 187.5 197.5 Total Liabilities and ShareholdersEquity 387.5 392.5 You are an analyst assessing the financial statement impacts of capitalizing the R&D expenditures as an R&D asset. You assume that such an asset should be amortized over a useful life of three years with zero residual value. To simplify computation, you also assume that R&D expenditures are incurred mid-year. For tax purposes, R&D expenditures are fully deductible in the year incurred. The corporation tax rate is 30%. Required (a) Determine the 2010 and 2009 year-end balances of the company's R&D asset. (Show your workings in a tabular format.) (b) Determine the 2010 R&D amortization expense. (b) Determine the 2010 R&D amortization expense. (c) Explain the intuition behind the mid-year incurrence" assumption used to capitalize the R&D expenditures. Answer (a) As of the year end of 2010, only R&D expenditures incurred mid-year two years ago or later can still be part of the R&D asset. 2010 9.75 1 - (0.5/3) Year R&D expenditure incurred at 1 July of Fraction not yet amortized as of 2010 year end R&D expenditure constituting the 2010 year-end balance of the R&D asset 2009 12.75 1 - (1.5/3) 2008 4.50 1 - (2.5/3) (5/6)9.75 (3/6)12.75 (1/6) 4.50 8.13 6.38 0.75 Similarly, Year R&D expenditure incurred at 1 July of Fraction not yet amortized as of 2009 year end R&D expenditure constituting the 2009 year-end balance of the R&D asset 2009 12.75 1 - (0.5/3) 2008 4.50 1 - (1.5/3) 2007 6.00 1 - (2.5/3) (5/6)12.75 (376)4.50 (1/6) 6.00 10.63 2.25 1.00 R&D asset o 2010: 8.13 + 6.38 +0.75 = 15.25 o 2009: 10.63 +2.25 +1.00 = 13.88 (b) The capitalization of R&D expenditures gives rise to an R&D amortization expense each year. Although the 2007 R&D expenditure does not constitute a part of the 2010 year-end R&D asset, the expenditure has 6 months of remaining useful life amortized in 2010: 2010 9.75 0.5/3 2009 12.75 1/3 2008 4.50 1/3 2007 6.00 0.5/3 Year R&D expenditure incurred at 1 July of Fraction of the expenditure amortized in 2010 Amount of the expenditure amortized in 2010 (1/69.75 (1/3)12.75 (1/3) 4.50 (1/6) 6.00 1.63 4.25 1.50 1.00 R&D amortization expense o 2010: 1.63 +4.25 +1.50 +1.00 = 8.48 (b) The capitalization of R&D expenditures gives rise to an R&D amortization expense each year. Although the 2007 R&D expenditure does not constitute a part of the 2010 year-end R&D asset, the expenditure has 6 months of remaining useful life amortized in 2010: 2010 9.75 0.5/3 2009 12.75 1/3 2008 4.50 1/3 2007 6.00 0.5/3 Year R&D expenditure incurred at 1 July of Fraction of the expenditure amortized in 2010 Amount of the expenditure amortized in 2010 (1/6)9.75 (1/3)12.75 (1/3) 4.50 (176) 6.00 1.63 4.25 1.50 1.00 R&D amortization expense o 2010: 1.63 +4.25 +1.50 +1.00 = 8.48 Alternatively, 13.88 +9.75 - 15.25 = 8.38 (difference due to rounding) (c) R&D expenditures are likely to be incurred at different times throughout a year. Suppose that it is incurred evenly over a year. An approximation to this is to assume that all the expenditure is incurred in the middle of a year