Extreme SpA is a newly established entity. It was set up by an entrepreneur who is generally interested in the business of providing engineering and operational support services to aircraft manufacturers. Extreme SpA, through the contacts of its owner, received a confirmed order from a well-known aircraft manufacturer to develop new designs for ducting the air conditioning of their aircraft. For this project, Extreme SpA needed funds aggregating to EUR 2 million. It was able to convince two international venture capitalists of the validity of the project and obtained funding of EUR 2m from them. 

The expenditures Extreme SpA incurred in carrying out its research and development project follow, in chronological order: 

“What is the proper accounting treatment for the various costs incurred in 2009?

Transcribed Image Text:

15 January 2009: paid EUR 350,000 for the salaries of the technicians (engineers and consultants). 31 March 2009: incurred EUR 500,000 for the cost of developing the duct and producing the test model. 15 June 2009: paid an additional EUR 600,000 for revising the ducting process to ensure that the product could be introduced in the market. 15 August 2009: developed, at a cost of EUR 160,000, the first model (proto- type) and tested it with the air conditioners to ensure its compatibility. 30 October 2009: a focus group of other engineering providers was invited to a conference for the introduction of this new product. Cost of the con- ference aggregated to EUR 100,000. 15 December 2009: the development phase was completed and cash flow budget was prepared. Net profit for 2009 was estimated at EUR 1,800,000.