Question
On 1 July 20x9 Brain Waves Ltd commenced a project to develop a device to scan the minds of students so their understanding of a
On 1 July 20x9 Brain Waves Ltd commenced a project to develop a device to scan the minds of students so their understanding of a course could be determined without the need for an exam. In the 20x10 financial year the following expenditure was incurred: $80,000 for preparing and undertaking a survey of schools and universities to determine demand; $75,000 to research staff salaries to analyse survey results; and $10,000 on computers (expected useful life of 4 years) used by research staff. The survey results indicated that there will be a significant demand for Brain Waves Ltd product and accordingly the development and testing of a prototype device commenced in July 20x10. By 30 June 20x11 the testing had been completed successfully and an offer was received to purchase the technology for $30 million. Expenditures incurred during the year ended 30/6/20x11 in relation to the project were: Supplies used in development: $145,000 Developing and testing prototype: $1,350,000 Salaries of prototype development staff: $425,000 Rental of warehouse used as development site: $120,000 Salaries for office staff: $90,000 Costs spent by the firm on advertising: $200,000 $2,000,000 on equipment (useful life 12 years & zero residual) used in the development of the prototype. Calculate how much of the R&D expenditure will be classified as development costs under IAS 38 in Brain Waves Ltd financial statements at 30/06/20x10 and 20x11.
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