As chief accountant at Italin NV, you have been given the following information by the director of research:
Project Luca
€000
Costs to date (pure research 25%, applied research 75%) .......... 200
Costs to develop product (to be incurred in the year to 30 September 20X1) . 300
Expected future sales per annum for 20X2–20X7 ........... 1,000
Fixed assets purchased in 20X1 for the project:
Cost ............................. 2,500
Estimated useful life ...................... 7 years
Residual value .......................... 400
(These assets will be disposed of at their residual value at the end of their estimated useful lives.)

The board of directors considers that this project is similar to the other projects that the company undertakes, and is confident of a successful outcome. The company has enough finances to complete the development and enough capacity to produce the new product.

Required:
Prepare a report for the board outlining the principles involved in accounting for research and development and showing what accounting entries will be made in the company’s accounts for each of the years ending 30 September 20X1–20X7 inclusive.
Indicate what factors need to be taken into account when assessing each research and development project for accounting purposes, and what disclosure is needed for research and development in the company’s published accounts.