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Subject: financial reporting IAS 38 Intangible assets Fizz is a manufacturing entity that runs a number of operations including a bottling plant that bottles carbonated
Subject: financial reporting
IAS 38 Intangible assets
Fizz is a manufacturing entity that runs a number of operations including a bottling plant that bottles carbonated soft drinks. Fizz has been developing a new bottling process that will allow the bottles to be filled and sealed more efficiently.
The new process took a year to develop. At the start of development, Fizz estimated that the new process would increase output by 15% with no additional cost (other than the extra bottles and their contents). Development work commenced on 1 May 2005 and was completed on 20 April 2006. Testing at the end of the development confirmed Fizzs original estimates.
Fizz incurred expenditure of 180,000 on the above development in 2005/06.
Fizz plans to install the new process in its bottling plant and start operating the new process from 1 May 2006.
Fizzs reporting period end is 30 April.
Required:
i. Explain the requirements of IAS 38 Intangible Assets for the treatment of development costs.
ii. Explain how Fizz should treat its development costs in its financial statements for the year ended 30 April 2006.
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