ExpertEasy2 marksMultiple Choice
ACCA · Question 10 · Financial Reporting
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?
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?
Answer options:
A.
$400,000
B.
$550,000
C.
$450,000
D.
$600,000
How to approach this question
Apply the PIRATE criteria from IAS 38. Costs before viability are research (expense). Costs after viability are development (capitalize). Training costs are always expensed.
Full Answer
A.$400,000✓ Correct
Under IAS 38, research costs ($150,000) must be expensed. Development costs incurred after the project meets the capitalization criteria ($400,000) must be capitalized. Staff training costs ($50,000) are always expensed as the entity cannot control the future economic benefits of trained staff.
Common mistakes
Capitalizing training costs or research costs.
Practice the full ACCA FR — Financial Reporting Practice Exam 6
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