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Prepare a report to the board outlining the principles

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Reference no: EM132217904

Question - You have been given the following financial data of a research project from the chief researcher of Balloon Ltd:

Cost to date (pure research 25%, applied research 75%) 600,000

Cost to develop the product in 2018 900,000

Expected future sales per annum in 2019 3,000,000

Fixed assets purchased in 1 January 2018 for the project:

Cost 7,500,000

Estimated useful life 5 years

Residual value 120,000

The board of directors considers this project to be similar to other projects that the company has undertaken and is confident of a successful outcome.

The company has sufficient resources to complete development and has sufficient capacity to produce the product.

Required:

a. Prepare a report to the board outlining the principles involved in accounting for research and development, and showing what accounting entries need to be made in the financial year 2018.

b. Explain what factors need to be taken into account when assessing a research and development project for accounting purposes and what disclosures are needed for research and development in Balloon's financial statements.

Reference no: EM132217904

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