In 2017 McGoy Ltd decided to develop a surfboard out of a new type of material that was resistant

to damage. The material to be used was more like plastic than the fibreglass that was traditionally used on

surfboards. In 2017 McGoy Ltd spent $510 000 on research aimed at understanding the properties of

different types of plastics. This knowledge provided what the company considered to be a significant

breakthrough, which if utilised should lead to significant future economic benefits.

In 2018 McGoy Ltd developed a prototype of its surfboard. It asked several leading surfers to ride its

surfboard at the annual Rip and Curl Pro Event at Bells Beach. Costs involved in developing the

prototype in 2018 were $780 000. The reaction to the new surfboard was positive and many major

retailers put in orders for the board. Anticipating the demand, McGoy Ltd had spent $25 000 on legal

costs to register a patent for the board. The patent has a life of five years after which time other

producers may copy the surfboard design.

Because of the positive reaction, in 2019 McGoy Ltd undertook worldwide marketing of the surfboard

at a cost of $2 200 000. It became apparent that demand for this new surfboard was huge, and

within four months, orders for over $40 million dollars' worth of the boards were received. McGoy Ltd

employed a firm of accountants to work out the present value of the new surfboard and they

believed that the product had a present value of at least $200 million. The managing director of

McGoy Ltd then decided that he would like to have the present value of the surfboard reflected in the

company's financial statements; that is, he wanted it to be valued at its fair value. While his

accountants considered that the present value was $200 million, a major competitor made a legally

binding offer to buy the patent for the product for a price of $150 million.

REQUIRED

Describe how to account for the above transactions and events and provide appropriate journal entries.