XYZ Windows Ltd is involved in a research and development project to create a filtering window that

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Question:

XYZ Windows Ltd is involved in a research and development project to create a filtering window that removes the need for curtains. For the current year ended 30 June 2020 expenditure on the project is as follows: Research $235,000 Development $500,000 The window is expected to return profits of $70,000 per year for the 10 years commencing 1 July 2020. Assuming the company uses a straight-line method amortization. This company uses a discount rate of 8 per cent.

Required:

i) How much research and development cost should be expensed in the year to 30 June 2020?

ii) How much development expenditure should be amortized in the year to 30 June 2021?

Part B

An assistant of yours has encountered the following matter during the preparation of the draft financial statements of XYZ Ltd for the year ending 30 June 2020. He /She has given an explanation of his/her treatment of the item. “XYZ Ltd management spent $200,000 sending its staff on training courses during the year. This has already led to an improvement in the company’s efficiency and resulted in cost savings. The organizer of the course has stated that the benefits from the training should last for a minimum of four years. The assistant has therefore treated the cost of the training as an intangible asset and charged six months’ amortization based on the average date during the year on which the training courses were completed.” Required: Comment on the assistant’s treatment of them in the financial statement for the year ended 30 June 2020 and advise him how they should be treated under AASB 138 Intangible Assets.

Part C

If an organization is constructing a building, and that building will take a number of years to complete, can the organization recognize revenue throughout the contract, or does the construction-based organization have to wait until project completion before it recognizes the revenue associated with the construction contract? Discuss this statement in accordance to AASB 15.