QUESTION 1

During the year, the company developed a new project called Jonny King. We commenced work to improve water filtering services on 1 July 2022, resulting in a patent for the Jonny King filter process in June 2023. The company expects an approximately 10% increase in sales revenue from selling Jonny King filters in the current water filtering market.

Details of Outlays

July 2022: Research conducted to develop filters - $340 000

Sep 2022: The search for application of research findings - $114,000

Nov 2022: Formulation of improved Jonny King filters - $97,000

Dec 2022: Purchase of machinery to construct Jonny King filters* note 1 - $300,000

Jan 2022: Design and construction of final selection of possible alternatives - $156 000

Feb 2023: Operation of a pilot plant that is not for commercial production - $79 000

April 2023: Testing of pre-use Jonny King filters - $270,000

July to April : Total wages paid to scientists and technicians* note 2 - $1,799,000

June 2023: Registration of a trade design fee - $ 1,500

June 2023: Lawyer fees incurred to protect Jonny King filters brand against cheap copies - $15 000

June 2023: Selling and administrative costs allocated - $410,000

June 2023: Initial operating losses - $160,000

* Note 1: The machine was purchased on 1 December 2022 with a useful life of 6 years and no residual

value.

* Note 2: The breakdown of Wages paid is as follows:

July 2022 - $189,000

September 2022 - $240,000

November 2022 - $250,000

January 2023 - $330,000

February 2023 - $390,000

April 2023 - $400,000

Total - $1,799,000

REQUIREMENT

Our marketing director says there is a possibility we can recognise the above costs (all) as an asset, but he has not been clear on how to make this determination. Can you please explain whether all the costs below can be recognised as part of an asset? Please explain the requirements with examples that would be relevant to this case.