Noura Ltd is a large UK company that has its Research and Development Department (R D) and incurred the following expenses during the year (i) The company sent 10 staff for training to improve the production method The cost incurred for the training was $80,000 in total The company is believing that the training will improve the quality and the method of production and thereby additional revenue will arise in the future to the extent of $800,000 (ii) The research team of the company conducted a research work by spending $100,000 on the development of a new medicine that is not available at present in the market Based on the research finding of the research team, the development team started its further process of developing the medicine (iii) In year 1, the company spent $250,000 on developing the medicine but when spending the money, it was not clear that the project will be technically feasible (iv) In year 2, the company spent $500,000 on developing the same medicine and it has been satisfied with all of the conditions for recognizing the development costs as an intangible asset Note that if the development expenditure is capitalized, it has to be amortized for 5 years Required a) Explain clearly how to consider the above expenditure in the financial statements of Noura Ltd Also show the necessary journal entries for the above transactions (20 marks) b) If the expenditure is capitalized, then how much amount to be amortized annually Show the calculation and pass the necessary journal entry for the amortization (4 marks) c) IAS 38 requires that development costs must be capitalized as an intangible if it satisfies certain conditions Explain the conditions (6 marks)

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Noura Ltd is a large UK company that has its Research and Development Department (R &D) and incurred the following expenses during the year. (i)

Noura Ltd is a large UK company that has its Research and Development Department (R &D) and incurred the following expenses during the year.

(i) The company sent 10 staff for training to improve the production method. The cost incurred

for the training was $80,000 in total. The company is believing that the training will improve the quality and the method of production and thereby additional revenue will arise in the future to the extent of $800,000.
(ii) The research team of the company conducted a research work by spending $100,000 on the development of a new medicine that is not available at present in the market. Based on the research finding of the research team, the development team started its further process of developing the medicine.
(iii) In year 1, the company spent $250,000 on developing the medicine but when spending the money, it was not clear that the project will be technically feasible.
(iv) In year 2, the company spent $500,000 on developing the same medicine and it has been satisfied with all of the conditions for recognizing the development costs as an intangible asset.

Note that if the development expenditure is capitalized, it has to be amortized for 5 years

Required
1. a) Explain clearly how to consider the above expenditure in the financial statements of Noura Ltd. Also show the necessary journal entries for the above transactions.
  
  (20 marks)
2. b) If the expenditure is capitalized, then how much amount to be amortized annually? Show the calculation and pass the necessary journal entry for the amortization. (4 marks)
3. c) IAS 38 requires that development costs must be capitalized as an intangible if it satisfies certain conditions. Explain the conditions. (6 marks)