Question 6

Services Ltd incurred research and development costs of $10 million on a project to develop product A in 2018. The research phase can be clearly distinguished from the development phase of the project. Total costs in the research phase are $6 million, and in the development phase total costs are $4 million. All of the IAS 38 criteria have been met for recognition of the development costs as an asset. Product A was brought to market in Year 2019 and is expected to be marketable for five years. Total sales of Product A are estimated at more than $100 million.

Required:

(a) Explain the research and development expenditure related regulations of IAS and US GAAP.

(b) Determine the impact research and development costs have on Services Ltd in 2018 and 2019 income under (1) IFRS and (2) U.S. GAAP.

(c) Summarize the difference in income, total assets, and total shareholders equity related to Product A over its five-year life under the two different sets of accounting rules.

(10 marks)

Question 6 Services Ltd incurred research and development costs of $10 million on a project to develop product A in 2018. The research phase can be clearly distinguished from the development phase of the project. Total costs in the research phase are $6 million, and in the development phase total costs are $4 million. All of the IAS 38 criteria have been met for recognition of the development costs as an asset. Product A was brought to market in Year 2019 and is expected to be marketable for five years. Total sales of Product A are estimated at more than $100 million. Required: (a) Explain the research and development expenditure related regulations of IAS and US GAAP. (b) Determine the impact research and development costs have on Services Ltd in 2018 and 2019 income under (1) IFRS and (2) U.S. GAAP. (c) Summarize the difference in income, total assets, and total shareholders' equity related to Product A over its five-year life under the two different sets of accounting rules. (10 marks)