Mighty Bike Ltd is developing a new product Mountain Bicycle. The company spent $400 000 researching the demand for the Mountain Bicycle and $300 000 to make sure that the product is safe and environmentally friendly. The research showed that the demand for such bicycles is high, it is expected that thousands of Mountain Bicycle will be sold for at least $600 each and the product is environmentally safe. Therefore, Mighty Bike Ltd started to design the product by purchasing the production facilities. This phase of research and development costs $500 000. All the expenditure was incurred within the financial year ended 30 June 2021.

REQUIRED

1. How much of the above expenditure would be quailed to be considered as research expenses? (1.5 mark) 2. How much of the above expenditure would be quailed to be capitalised as an intangible asset? (1.5 mark)