Reference no: EM132552132
Ltd is a large company listed on the Securities Exchange . It is a well-established medical supplies company with extensive marketing and distribution networks throughout the world. A Ltd is also quite profitable with low levels of debt.
S Ltd has two ongoing projects at 30 June 2020. Details of the projects are provided below.
Project 1 - Surgery Free Knees
A Ltd is working on a new knee brace for injured athletes to avoid knee surgery. The company has used $160,000 in materials and salaries on the project between 1 July 2019 and 30 June 2020. To date, A Ltd has designed and extensively tested the technology required for mass-production of the knee brace, it has registered a patent for the knee brace and is currently finalising the appropriate packaging and colours to use. The company is planning to go to market with the knee brace by September 2020. Market research commissioned in April 2020 confirms that there is significant and highly lucrative global market for these knee braces amongst professional athletes.
Project 2 - Mystic Honey
During the period July 2019 to June 2020, A Ltd commenced research into the use of wild bee honey sourced from the interior of New Zealand to alleviate the pain of arthritis. The Director of A Ltd's research laboratories briefed major investors about the project in June 2020. She indicated that whilst early results are promising, it is difficult to identify a commercial application because of the high costs of collecting and then processing the wild bee honey. However, A Ltd is planning to continue with the project into 2021 because of the significant alleviation of arthritic pain that is evident in clinical trials. The laboratory costs associated with the project total $98,000 for the period 1 July 2019 to 30 June 2020.
REQUIRED:
Question 1: Explain how A Ltd should account for the costs incurred on Project 1 and Project 2 in accordance with the requirements of AASB 138 'Intangible Assets'? Show ALL explanations and working necessary to support your answer.