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Question 2

The production apparatus in Lkkerier A / S is highly specialized, as the company otherwise cannot

compete against the low wages in Eastern Europe. Lkkerier A / S has a development department that

is responsible for the development of new machines for use in new products.

Explain what is meant by research and development, respectively, including its accounting treatment.

In December 2021, Lkkerier A / S incurred the following costs in the development department:

Costs of 300.000 DKK for the completion of a machine for the production of a new passion fruit cake (as a replacement for the known lemon cake). The cake is expected to be introduced to the market in 2022 and is expected to be a huge success - in particular on the Swedish market.

Cost of DKK 200.000 DKK for a new machine for the production of pepper nuts. That turned out, however, that it was not possible to use the technology, and the project is therefore scrapped.

Costs of DKK 150.000 for a new drawing program and DKK 100.000 more for training of all employees in the development department in relation to use of the program

Explain whether the above costs are to be treated in Lkkerier A / S annual report, including both the first recognition and the subsequent measurement.

In October 2020, Lkkerier A / S bought a number of cake recipes from DR for 2 million DKK. The amount was, after advice from the company's auditor, activated as an acquired right (intangibles) and depreciated over 5 years. The reason is that the cakes have been in The Great Baking contest, which has given a large exposure for Lkkerier A / S. The CFO has now got the idea to revalue the "acquired right (intangible) to 5 million DKK, as Lkkerier A / S has received an offer from a competing company to take over the recipes at that price. Please explain whether it is possible for Lkkerier A / S to write up the cake recipes for 5 million DKK.

Lkkerier A / S has paid a premium of 85.000 DKK for a health insurance for every employee in the development department, which means that they can get private treatment, if they become ill or otherwise injured. The insurance premium is paid on the 1st. September 2021, and the insurance covers the period from 16 August 2021 to 15 August 2022.

From specific calculations, please explain the accounting treatment of the insurance premium for both the financial years 2021 and 2022.