Reference no: EM132683714

During the course of a year Happy Ltd incurred expenditure on many research and development activities. Details of two of them are given below.

• Project AX To develop a new compound in view of the anticipated shortage of raw material currently being used in one of the company's processes. Sufficient progress has been made to suggest that new compound can be produced at a cost comparable to that of the existing raw material.

• Project BX To improve the yield of an important manufacturing operation of the company. At present material input with a cost of RM 100,000 p.a becomes contaminated in the operation and half is wasted. Sufficient progress has been made for the scientists to predict an improvement so that only 20% will be wasted. The directors of Happy Ltd consider both projects will be successful. In addition, the company has enough finances to complete both projects and enough capacity to see both projects through to successful conclusion. Cost incurred during the year were:

Project                                   AX                    BX
                                       RM                    RM
Staff salaries                      15,000          10,000
Overhead (direct cost)         26,000          12,000
Plant on cost (life 10 years) 20,000          60,000

Required: In relation to MFRS138 Intangible Assets,

Question (a) Define (i) Research and (ii) Development

Question (b) Say under what circumstances it would be appropriate to defer development (capitalize) expenditure to future periods.

Question (c) Show how the expenditure on projects AX and BX would be dealt with in the statement of financial position and statement of comprehensive income in accordance with MFRS 138 Intangible Assets.