Reference no: EM132997256

QUESTION - KMH Bhd is involved in a health supplement business, has been heavily investing in research and development activities to develop multivitamins to boost immune health for Covid-19. During the year ended 31 March 2020, the company spent RM600,000 for the activities aimed at obtaining new knowledge and survey about multivitamins available in the market. KMH Bhd purchased a piece of special equipment to be used solely for the development of the new multivitamins for RM300,000. The special equipment has an estimated useful life of 5 years with zero residual value. The company also incurred the following costs for the research and development activities as part of its strategic planning program in creating a new product for the company:

RM

Salaries and wages paid to the research and development team 2,500,000

Cost of materials used in the research and development activities 500,000

Overhead costs related to the research and development activities 150,000

Laboratory expenses 250,000

KMH Bhd is in the opinion that all the criteria set out in paragraph 57, MFRS 138 Intangible Assets was met and the development cost is qualified to be capitalized with the amortization period of 5 years. Additional information related to the above costs were:

70% of the salaries and wages were paid during the research activities and the remaining was in the development activities.

The cost of materials is 60% attributed to the development activities and the rest is to the research.

Overhead cost and laboratory costs are allocated evenly to research and development activities

Depreciation of the special equipment is allocated 50% to research and development activities respectively.

During the year ended 31 March 2021, the multivitamins were completed and approved by the World Health Organization (WHO). It is anticipated that the multivitamins will be able to be marketed and to derive a future economic benefit for several years. The multivitamins were successfully launched on the market and the company spent RM50,000 for the launching expenses. On the same day, KMH Bhd also spent RM50,000 to acquire a patent for the newly developed multivitamins. The company decided to amortize the patent for over 10 years.

Required - Based on the information given, advise KMH Bhd on the suitable accounting treatment for the cost incurred relating to the research and development activities of the multivitamins for the year ended 31 March 2020 and 31 March 2021 under the provisions of MFRS 138 Intangible Assets.