Development costs in its financial statements , Accounting Standards

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AB Limited is a manufacturing entity that runs a number of operations including a bottling plant that bottles carbonated soft drinks. AB has been developing a new bottling process that will allow the bottles to be filled and sealed more efficiently.

The new process took a year to develop. At the start of development, AB estimated that the new process would increase output by 15% with no additional cost (other than the extra bottles and their contents). Development work commenced on 1 May 2011 and was completed on 20 April 2012. Testing at the end of the development confirmed AB's estimates.

AB incurred expenditure of £280,000 on the above development in 2011/12.

AB plans to install the new process in its bottling plant and start operating the new process from 1 May 2012.

AB's balance sheet is 30 April.

Required:

(a)  Using IAS 38-Intangible Assets, carefully describe how AB should recognise and treat its development costs in its financial statements for the year ended 30 April 2012.


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