Reference no: EM132990439

Question - Tamar Bhd has been carrying research activities to develop a new facial cream to prevent aging. It has allocated and spent an expenditure of RM400,000 per month for this research and development project. On 1 January 2011, research began for a period of 10 months and development on the new product began immediately after the research was considered a success. It continued in the following year 2012. Pilot samples were also developed and tested on volunteers. Restoration cost of RM 67,000 was spent for the extension of the lab for research.

Early in July 2012, the directors of Tamar Bhd were confident of a profitable outcome derived from the project. Commercial production of the new product began in January 2013 and the management believed the new product would lead the market and may continue to stay in market for the next ten years.

The fair value of the development expenditure is determined to be RM3,010,000 on 1 January 2014. At the same time a review carried out revealed that the benefits from the development project would be enjoyed more than 10 years. Therefore, the remaining useful life will be extended by another 5 years.

a- Discuss why information on research and development expenditure is useful to the users of financial statements.

b- Explain the recognition treatment in relation to the incurrence of the restoration expense.

c- Advise the entity on the useful life of the asset.