Question: Bick Barn Ltd. is involved in the research and development of a new mountain bicycle calling Hiking Bike. For this research and development activities Bick

Bick Barn Ltd. is involved in the research and development of a new mountain bicycle calling Hiking Bike. For this research and development activities Bick Barn Ltd. has incurred the following expenditure:

A. $85 000 has been spent for obtaining a general understanding of mountain bicycles.

B. $45 000 has been spent for investigating understanding the use of mountain bicycle viewpoints and recommendations.

C. $120 000 spent for developing and testing a full prototype of three mountain bicycles to be called the pioneer hiking bike.

There is expected to be a very large market for the Hiking Bike which will generate many millions of dollars in revenue for Bike Barn.

Required

1. Considering Australian Accounting Standards Determine how the above expenditure would be treated for accounting purposes as research expense or capitalised development. (2 Marks)

2. Calculate the total amount that should be capitalised.

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