Question 1

SECTION B - CASE 1: AeroTech Drones

AeroTech Drones Co manufactures specialized agricultural drones. The year-end is 31 December 20X5.
During 20X5, AeroTech incurred the following costs on a new drone project ('AgriFly'):
- 1 Jan to 30 Jun: $400,000 on initial research and feasibility studies.
- 1 Jul to 31 Oct: $600,000 on development. Commercial viability and technical feasibility were established on 1 July.
- 1 Nov to 31 Dec: $200,000 on final testing and production setup.
The AgriFly drone was ready for use on 31 December 20X5.

Assuming the capitalized development costs have an estimated useful life of 4 years, what is the amortization charge for the year ended 31 December 20X5?

Accepted Answer

Determine when the asset became available for use. Amortization only commences from that date.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Starting amortization from the date capitalization began (1 July), resulting in a 6-month charge.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 1

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