Exercise 5: Innovator Ltd incurred expenditure researching and developing a cure for a common disease found in turnips. At the end of 2010 determined that the research and development project was unlikely to succeed because trials of the prototype had been unsuccessful. During 2011 a breakthrough in agricultural science improved chances of the product succeeding and development resumed. The project was completed in 2011. At the end of 2011 costs incurred on the project were expected to be recoverable. Innovator expects that 10 per cent of the project revenue will be received in 2012, 20 per cent in 2013, 30 per cent in 2014, 30 per cent in 2015, and 10 per cent in 2016. After five years the product will be at the end of its useful life because the disease found in turnips will have been eradicated. Costs incurred were as follows: Nm Research Development 2010 $40,000 $10,000 2011 $12,000 $60,000 Required: 1. How much research expenditure and development expenditure should be recognized as an expense in 2010? 2. How much research and development expenditure should be recognized as an expense in 2011? 3. State how much expenditure should be carried forward (deferred) and reported in the statement of financial position at the end of 2010 and 2011. 4. Prepare journal entries for the amortization of deferred costs in 2012 and 2013, assuming that actual revenues are as expected. State the amount of deferred expenditure carried forward in the statement of financial position in relation to the deferred costs. 5. Assume that after charging amortization based on sales revenue at the end of 2014 the discounted net cash flows expected to be generated from the deferred expenditure were estimated as $15,000. Prepare any journal entries required to account for this information