Reference no: EM132613575

Turner Sisters plc commenced a development project for a new electronic security device on 1 January 2019. The project has gone through a research phase during which the company incurred £700,000 on overheads and labour costs. The project was finally proved to be commercially viable on 1 July 2019. Directors confirmed that the company will the adequate resources to complete this project and would sell the electronic security device accordingly. Since then, the company spent £800,000 on overheads and labour costs directly relating to this project.

A machine with an original cost of £1,500,000 was purchased specifically for this project on 1 January 2019. It has a useful life of 10 years with no residual value expected at the end of its useful life. The project was completed on 31 December 2019. The company expects to recover the total development cost over the next 5 years after the date of completion. The company obtained a grant of £500,000 for the machine on 1 January 2019. Once the project was completed, Turner Sisters plc would return the machine for its own operational use.

Required

Question 1: Explain, in reference to relevant IASs, and show how the research and development expenses, the machine and the grant above should be accounted for in the financial statements for 2019 and 2020.