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In recent years, Eclipse Ltd has undertaken two different research and development projects. Eclipse Ltd paid cash for all research and development expenditures. Eclipse Ltd

In recent years, Eclipse Ltd has undertaken two different research and development projects. Eclipse Ltd paid cash for all research and development expenditures. Eclipse Ltd complied with AASB 138 Intangible Assets and has used the cost method to account for intangible assets. Additional information regarding these two projects is outlined below.

Project 1: Research costs of $150,000 were incurred on this project during the financial year ending 30 June 2018. During the financial year ending 30 June 2019, development expenditures of $600,000 were capitalized. At 30 June 2019, management determined that production in relation to this project was expected to commence in January 2021. During the financial year ending 30 June 2020, an additional $500,000 of development expenditures were capitalized. At 30 June 2020, the recoverable amount of the development asset in relation to this project is estimated at $1,000,000.

Project 2: During the financial year ended 30 June 2019, research expenditures of $280,000 were incurred on this project. Development commenced during the next financial year, and development expenditures of $2,400,000 were capitalized between 1 July 2019 and 31 March 2020. Production on this project commenced on 1 April 2020. Profitable sales were expected for a total of three years commencing on 1 April 2020. At 30 June 2020, the discounted net cash flows expected to be generated from the deferred expenditure were estimated as $1,500,000.

Required:

  1. (a) For Project 1, record the required journal entries in the books of Eclipse Ltd for the financial years ended 30 June 2018, 30 June 2019, and 30 June 2020 in accordance with AASB 138 Intangible Assets.

  2. (b) For Project 2, record the required journal entries in the books of Eclipse Ltd for the financial years ended 30 June 2019 and 30 June 2020 in accordance with AASB 138 Intangible Assets.

  3. (c) With reference to the prescribed article by Barker and McGeachin (2015), discuss how the required accounting treatment for Project 1 and Project 2 above may (or may not) be regarded as conservative.

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