Question
Hi, I have a question about an accounting case called Overlook Video Stores Inc. OVS has spent more than $425,000 to date researching
Hi, I have a question about an accounting case called "Overlook Video Stores Inc."
OVS has spent more than $425,000 to date researching and developing a patented database used to track orders and returns of DVDs from Movies by Mail. The database is fully integrated with the website. The controlling shareholder of OVS has determined that other companies, in various lines of business, could make use of this technology. Essentially, OVS has developed an off-the-shelf packaged inventory tracking database that other businesses can purchase. It seems that OVS has spent $175,000 on research and an additional $250,000 on development. OVS capitalized the full $425,000 as ana asset on the balance sheet.
I think the research cost of $175,000 should be an expense not capitalized. However, I'm still confused with the expensefor developmentcosts.I don't know which must be capitalized or expensed.
In my opinion, the salaries of office administration staff must be an expense and not be capitalized since there's no future benefit on generating revenue. Could you please help me if any other costs are expenses? The company is incorporated and usingASPE.
The Development costs are :
Salaries of researchers $50,000
Salaries of office administration staff $20,000
Allocation of direct overhead utility cost $20,000
Allocation of building amortization $50,000 (the amortization of building was based on a 20% allocation, since the development lab accounts for approximately 20% of the building)
Amortization of equipment used in development process $60,000
Materials used in the lab during development $50,000
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I have asked this before and someone gave me IFRS criteria.
This is ASPE
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