Reference no: EM133069941

Question - On 1 July 20x9 Brain Waves Ltd commenced a project to develop a device to scan the minds of students so their understanding of a course could be determined without the need for an exam. In the 20x10 financial year the following expenditure was incurred:

$80,000 for preparing and undertaking a survey of schools and universities to determine demand;

$75,000 to research staff salaries to analyse survey results; and

$10,000 on computers (expected useful life of 4 years) used by research staff.

The survey results indicated that there will be a significant demand for Brain Waves Ltd product and accordingly the development and testing of a prototype device commenced in July 20x10. By 30 June 20x11 the testing had been completed successfully and an offer was received to purchase the technology for $30 million. Expenditures incurred during the year ended 30/6/20x11 in relation to the project were:

Supplies used in development: $145,000

Developing and testing prototype: $1,350,000

Salaries of prototype development staff: $425,000

Rental of warehouse used as development site: $120,000

Salaries for office staff: $90,000

Costs spent by the firm on advertising: $200,000

$2,000,000 on equipment (useful life 12 years & zero residual) used in the development of the prototype.

Calculate how much of the R&D expenditure will be classified as development costs under IAS 38 in Brain Waves Ltd financial statements at 30/06/20x10 and 20x11.