During November 2019, Alpha (Pty) Ltd started with research for the development of a patent for the manufacturing of a medical screening machine that can detect levels of chemicals caused by depression in human beings. Alpha (Pty) Ltd intents to sell the screening machines to private hospitals and Government institutions.
Chemicals in the human body as a result of depression are difficult to separate from the rest of the natural complicated elements in the human body, to programme into the screening machines as the target element. Alpha Ltd requires confirmation of the separation of these elements from the WHO’s team of medical researchers in China. Confirmation has been received from the medical researchers and approved by the WHO from 01 January 2020 for Alpha to register the patent over the business idea.

Intangible Assets
During November 2019, Alpha (Pty) Ltd started with research for the development of a patent for the manufacturing of a medical screening machine that can detect levels of chemicals caused by depression in human beings. Alpha (Pty) Ltd intents to sell the screening machines to private hospitals and Government institutions.
Chemicals in the human body as a result of depression are difficult to separate from the rest of the natural complicated elements in the human body, to programme into the screening machines as the target element. Alpha Ltd requires confirmation of the separation of these elements from the WHO’s team of medical researchers in China. Confirmation has been received from the medical researchers and approved by the WHO from 01 January 2020 for Alpha to register the patent over the business idea.

Alpha immediately had filed for a patent to the idea by the 31 January 2020. The patent idea registration had only been finalised in July 2020. Alpha (Pty) Ltd may however use the patent for manufacturing despite the fact that it is not yet registered, and the patent description and technical drawings thereof are under very strict security and access thereto is restricted.
Alpha commenced manufacturing of the machines on the 01 March 2020.
Costs incurred in respect of the project are as below:
Expenditure incurred
Date costs incurred
Amount
Administration costs – Stationeries, graphic design costs etc 01/11/2019-31/01/2020 100,000
Administration costs – Stationeries, graphic design costs etc 01 February 2020-July 2020 200,000
Salaries for mechanical engineers 01/11/2019-31/01/2020 1,200,000
Salaries for Mechanical Engineers 01 February 2020-July 2020 1, 300,000
Internet costs for research 01/11/2019-01/03/2020 50,000
Consultation fees to Chinese Medical Researchers 01/11/2019-01/01/2020 300,000
Rental of research quarters 01/11/2019-01/03/2020 200,000

A strong Manufacturing company of popular medical equipment has given Alpha an offer to buy their patent, as they have had plans of developing a similar Machine, however, they could not obtain approval from the WHO, due to medical scandals and pending court cases that the company has in relation to some of the already developed machines. It is of this reason that Alpha turned down the offer.
The Namibian government is one of the institutions that had been in close communication on the progress of the research and development of the screening machines, with hopes of finding solutions to depression and emotional wellness of the youth, and had thus pre-ordered machines for all of its district hospitals, supporting hospitals and clinics all over the country. The sales are expected to be feasible for a period of 5 years before advanced technology is developed to perform the same screening.
Other orders by corporate organisations, universities as well as government institutions have been received by Alpha Pty Ltd. The head of research from Alpha explains they are not surprised by the orders of the machines as more of institutions in Namibia recognise the importance of mental health and emotional wellbeing of their people.

Alpha Ltd was the first company to receive this kind of patent approval by WHO and no other similar patent is available in the market.

Property Plant and Equipment

Alpha Ltd commenced production of the Machines on 01 March 2020.
The following assets have been acquired specifically for the manufacturing of the screening Machines.
New Manufacturing Machine
A new machine has been purchased from South Korea on 01 February 2020.
The information of the cost of the machine is as below:
Cost: 30,000,000 South Korean Won
Buying exchange rate: 1 NAD: 50.00 South Korean Won
Because of the types of lubricants used in the machine, the ministry of environment tourism requests that the machine be completely dismantled after its useful life to avoid exposure of these lubricants to the beautiful Namibian wildlife.
At commencement of manufacturing, the estimated dismantling costs were NAD 85,000
The building is to be depreciated over 10 years on a straight line basis, after which it will be sold for NAD 200,000
Assume an a tax rate of 10% per annum compounded on a monthly basis.
Ignore Tax.
Manufacturing Plant
Alpha (Pty) Ltd brought its manufacturing plant into use at 1 March 2020. The plant was constructed for NAD 15 000 000 and it was estimated that the plant would be used for 10 years for the screening machines, after which period it will have to be dismantled. The cost of dismantling was estimated to be NAD1 000 000 in ten years time. Alpha (Pty) Ltd considered at that stage a discount rate of 10%.
Alpha (Pty) Ltd 's accounting policy is to revalue the plant every year end. The plant was therefore revalued on 30 June 2020. A sworn valuator determined the gross replacement value, net of dismantling cost, at that date to be NAD15 900 000. The estimated dismantling cost at the end of the useful life of the plant remained at NAD1 000 000.
On 1 July 2020 Alpha (Pty) Ltd became aware of improved technology that will decrease the cost of dismantling considerably. The estimated cost of dismantling was accordingly reduced by NAD600 000. The appropriate discount rate at that date kept to be 10% after taxation.
Revaluation surpluses are considered to be realised as the assets are used and when they are sold. Accumulated depreciation during revaluations is accounted for on the restatement method.
Adminstrative building Building
Acquired on 28 February 2020
Cost: NAD 10,000,000
Depreciation: 30 years straight-Line basis
Accounting Policy: Revaluation Model with the net replacement Method
30 June 2020 net replacement method for the factory building was NAD 10 500 000.





Required:
a) Discuss the recognition, initial measurement and subsequent measurement in respect of the information provided for the intangible assets in the separate financial statements of Alpha (Pty) Ltd for the year ended 30 June 2020. (30)

b) Prepare Journals entries in the records of Alpha (Pty) Ltd for the transactions above for the year ended 30 June 2020 (20)

c) Present the information above in the financial statements of Alpha (Pty) Ltd for the year ended 30 June 2020. (10)