QUESTION 2

Nepture Ltd is developing a new form of individual transport that will act like a personal hovercraft. Costs for the year ended 30 June 2019 are:

Research: $950,000

Development costs: $650,000 Including in the development costs above, the accountant recognised that $250,000 were incurred before Nepture Ltd determined that this prototype will possible generated revenue to the company.

Due to the high individual cost of items, sales of this 'prototype' model will be small and generate $100 000 per year over the next 4 years.

REQUIRED

How much of the research and development cost should be expensed in the period ended 30 June 2019 and what amount should be amortised? You are required to show your working