Question 1

Section A

NeuroAI Co is developing a new machine learning algorithm. During the year ended 30 September 20X7, the following costs were incurred:
- $150,000 on initial feasibility studies and basic research.
- $400,000 on coding and testing the algorithm after management concluded the project was technically and commercially viable on 1 April 20X7.
- $50,000 on training staff to use the new algorithm.

What amount should be capitalized as an intangible asset for the year ended 30 September 20X7?

Accepted Answer

Apply the PIRATE criteria from IAS 38. Costs before viability are research (expense). Costs after viability are development (capitalize). Training costs are always expensed.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Capitalizing training costs or research costs.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 6

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