On reviewing the financial statements, the finance director discovers that the cost of sales includes £30,000 with respect to the development expenditure that is expected to benefit future years. It is decided that the development expenditure will be recorded as an asset in the statement of financial position (balance sheet). What will be the effect on the income statement (profit and loss account) and statement of financial position

(balance sheet) when this alteration is made?

(a) Profit will increase by £30,000 and a current asset named ‘Development Expenditure’ will be created, amounting to £30,000.

(b) Profit will decrease by £30,000 and a reserve named ‘Development Expenditure’ will be created, amounting to £30,000.

(c) Profit will increase by £30,000 and an intangible asset named ‘Development Expenditure’ will be created, amounting to £30,000.

(d) Profit will decrease by £30,000 and a tangible non-current (fixed) asset named ‘Development Expenditure’ will be created, amounting to £30,000.