Question 3 Sam Ltd is a large UK company has its own Research and Development Department (R&D) and incurred the following expenses during the year. 6) Company sent 15 staff for training to improve the production method. Cost incurred for the training was $160,000 in total. Company is believing that the training will improve the quality and the method of production and thereby additional revenue will arise in future to the extent of $500,000. (ii) For the year ended 31/12/2016, Research Team of the company conducted a research work by spending $200,000 for development a new medicine which is not available at present in the market. Based on the research finding the development team started its further process of developing the medicine. (ii) By the end of the year 31/12/2017, company spent $500,000 for developing the medicine but when spending the money, it was not clear that the project will be technically feasible. (iv) By the end of year 31/12/2018, company spent $1,000,000 for developing the same medicine and it has been satisfied all of the conditions for recognizing the development costs as an intangible asset. Company is expecting to start its production from 1/1/2020. Note that if the development expenditure is capitalized, it has to be amortised for 5 years. Required a. Explain clearly how to consider the above expenditure in the financial statements of Sam Ltd. Also show the necessary journal entries for the above transactions. (200 words) (13 marks) b. Explain clearly what are the treatment in accounts, if the development expenditure is capitalised. (50-75 words) (2 marks) c. IAS 38 requires that development costs must be capitalised as an intangible if it satisfies certain conditions. Explain the conditions. (150 words) (5 marks) (Total 20 marks)