Reference no: EM132584205
Originate Bhd. is a manufacturer of a pharmaceutical product that has been operating 10 years. The company is actively involved in research and development (R&D) activities and has the following R&D projects as at 31 December 2017:
Project A
A general survey into the long-term effects of its diet pills 'Be-Kurus', involving users' resistance to allergies. At the year end, the research is still at the basic stage. The cost involved was RM20,000. No worthwhile results with any particular applications have been obtained for the project.
Project B
An enhancement process involving an existing drugs, 'Luphoria'. The enhancement is performed to enable uses of the drug and is targeted to boost sales which incurred cost of RM50,000. This projected was completed successfully 30 April 2017, with the expectation that all future sales of the enhanced.
Project C
A scientific enquiry with the aim of identifying new strains of antibiotics for future use. Several possible substance ingredients have been identified in the project. However, evidence from the research is not sufficiently advanced to permit patents and copyrights to be obtained at the present time. The expenditure for this project was RM300,000.
Project D
Developed a prototype of the filtration machine and tested it periodically. Costs incurred were RM65,000. By end of August , the filtration machine has proven successful. In October, invited various manufactures to the demonstrations of the filtration system. Costs incurred where RM25,000 including RM12,000 for food and beverages for the prospective clients.
Project E
Commercial production of new painkillers called Antifever starts, which has accumulated capitalised cost of RM550,000 and the life of the products is expected to 5 years.
Required:
Question i. Classify the various phases of each project into research and development. Substantiate your answer.
Question ii. Determine the amount of research and development costs that should be treated as expense and those should be deferred (capitalised) for each projects. Support your answer with an accounting treatment.