Reference no: EM133016506

Question - Product development costs represent a considerable expenditure for companies. They are either written off as expenses or capitalized as assets.

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

Inspector Gadget Ltd has a policy of writing off development expenditure to the Income Statement as was incurred. In preparing its financial statements for the year 20X7 it became aware that under IFRS rules qualifying expenditure should be treated as an intangible asset. Below is the qualifying expenditure for the company:

000

Year ended 30 Sep 20X4 300

Year ended 30 Sep 20X5 240

Year ended 30 Sep 20X6 800

Year ended 30 Sep 20X7 400

All capitalized expenditure is deemed to having a four-year life. Assume that amortization starts at the beginning of the accounting period following capitalization. Inspector Gadget Ltd has no development expenditure before that for the year ended 30 September 20X4.

Required - Treating the above as the correction of an error in applying an accounting policy, calculate the amounts that should appear in the income statement and statement of financial position (including comparative figures) and statement of changes in equity of the company in respect of the development expenditure for the year ended 30 September 20X7.