Pretoria Ltd is a highly successful engineering company that manufactures filters for air-conditioning systems. Due to its
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Pretoria Ltd is a highly successful engineering company that manufactures filters for air-conditioning systems. Due to its dissatisfaction with the quality of the filters currently available, on 1 January 2010 it commenced a project to design a more efficient filter. The following notes record the events relating to that project.
Explain the accounting for the various expenses incurred by Pretoria Ltd.
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2010 January Spent 290,000 on the salaries of company engineers and consultants who conducted basic tests on available filters with varying modifications. February Spent 330,000 on developing a new filter system, including the production of a basic model. It became obvious that the model in its current form was not successful because the material in the filter was not as effective as required. March Acquired the fibres division of Durban Ltd for 660,000. The fair values of the tangible assets of this division were: Property, plant and equipment Inventories 360,000 120,000 This business was acquired because one of the products it produced was a fibrous compound, sold under the brand name Springbok, that Pretoria Ltd considered would be excellent for including in the filtration process. By buying the fibres division, Pretoria Ltd acquired the patent for this fibrous compound. Pretoria Ltd valued the patent at 100,000 and the brand name at 80,000, using a number of valuation techniques. The patent had a further ten-year life but was renewable on application. Further costs of 108,000 were incurred on the new filter system during March.
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The accounting for the various expenses incurred by Pretoria Ltd throughout the development of its new airconditioning filter can be explained as follows interpreting each months activities according ...View the full answer
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Advanced Financial Accounting An International Approach
ISBN: 9780273712749
1st Edition
Authors: Jagdish Kothari, Elisabetta Barone
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