ACC205 Jan 2011 Question 2(a) Product development costs are a material cost for many companies. They are either written off as an expense or capitalized as an asset. Required: Discuss the concep

ACC205 Jan 2011

Question 2(a)

Product development costs are a material cost for many companies. They are either written off as an expense or capitalized as an asset.

Required:

Discuss the conceptual issues involved and the definition of an assets that may be applied in determining whether development expenditure should be treated as an expense or an asset.

(b) Assume that each item listed below represents a separate class of assets. State whether they may be revalued and provide journal entries if the accounting standards allow revaluation.

(i)KH Media has developed a masthead for its magazine to the point that it is a very valuable asset. Although the masthead is not currently recognized, management believes that it can be sold for $150,000.

(ii) Thames Publishing purchased a publishing title a year ago for $500,000 when another publisher went into liquidation. THE BOOK IS SELLING WELL AND MAAMNGEMENT BELIVES THAT IT COULD PROBABLY SELL THE TITLE FOR$1.5 MILLION IF THEY EVR PUT IT ON TH MARKET.

(iii)Reno 56 acquired a franchise for an ice-cream stand at a shopping mall at a cost of $75,000.There is great demand for this type of franchise as evidenced by recent sales of equivalent franchises at other shopping malls. The current market price for such a franchise is $600,000.

© Kt TECH HAS DEFERRED DEVELOPMENT COSTS OF $300,000 AND THE ESTIMATED RECOVERABLE AMOUNT FOR THE DEVELOPMENT PROJECT IS $600,000.

© YT engineering ltd considers its employees as its more valuable asset-yet it has to leave them off the statement off the statement of financial position. Explain this situation.

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