Pluto Ltd incurred $17.2 million research and development costs on a new project this year which commenced on 1 February 2020. The research period of the new project lasted until 31 March 2020 and incurred $28 million costs. The remaining costs were accrued evenly over the development period. From 1 June 2020 the directors became confident that the project would be successful and yield a profit well in excess of its costs. The project was completed and ready for use by 30 September 2020 and was deemed to have a useful economic life of 10 years. Pluto has a policy of capitalising development expenditure where permitted by accounting standards.

Requirement:

Advise the board of directors of Pluto Ltd of the correct accounting treatment for the above research and development expenditure. You should provide detailed theory and extracts from the statement of profit or loss and other comprehensive income for the year ending 31st December 2020.