Reference no: EM131790237

Question - Kelly Ltd is currently working on four research and development projects. Summarised data relating to each project's expenditure and recoverable amount is provided below.

All revenue and expenditure predictions are deemed to be 'probable'. A discount rate of 6 per cent is used. In relation to the specific projects, the following information is also available:

Project Alpha

This project involves the compilation of all known information about the abrasive natures of different types of sea weed. The revenue inflows of $50,000 per year are being provided by a major shipping company.

Project Beta

This project relates to the ultimate development of a surfboard that will allow surfers to do more radical manoeuvres. Fifty per cent of the expenditure in 2011 was considered to represent research, while the balance of the related expenditures represents development.

Project Gamma

This project involves the development of a wetsuit with a rechargeable heat-pack. Initially, surfers rejected the concept because they believed it would create pain because of small electric shocks, and sales prospects looked poor. However, in 2012, surfers changed their minds and large-scale demand for the product was created. Only $250,000 of the expenditure in 2011 was deemed to represent research and the balance of all other expenditure was deemed to be development.

Project Delta

This project involved the development of a new wrist watch that predicts the height of waves. $250,000 has been spent on research and the balance on development. It is expected that only $1,000,000 will be recoverable.

Required: Determine how much research and development expenditure should be deferred as at the end of 2012.