Reference no: EM133128883
Question - NewCare Ltd (NewCare) is a listed carbon technology company that provides low carbon consultancy services to clients. NewCare is planning to internally develop "Project InfoCare", a unique information technology platform that will monitor, calculate, and report a client's carbon output according to prescribed environmental sustainability metrics. NewCare's Information Technology Division (ITD) will be responsible for the research and development phases of Project InfoCare. While NewCare has not undertaken any targeted InfoCare market research, the directors believe the information technology platform will provide significant strategic benefits and have given ITD an unlimited budget for Project InfoCare.
According to the Project InfoCare timeline, ITD will commence work on 1 January 2022 and the proposed information technology platform will be available for client use from 1 February 2023. NewCare is expecting two (2) revenue streams from the InfoCare information technology platform, a separate single use stream and a low carbon competitiveness package stream that will also include revenue from ongoing consultancy services. NewCare anticipates client contractual arrangements for both revenue streams will be established from 1 December 2022 with a service start date of 1 February 2023.
NewCare uses a 31 December year-end balance date and has adopted AASB 138:Intangible Assets and AASB 15: Revenue from Contracts with Customers.
NewCare has recently onboarded you as graduate financial accountant reporting directly to the Financial Controller. On your first day, you receive the following email from the Financial Controller: "Hi, welcome to the team. Have assigned the financial reporting implications of Project InfoCare task to you. Please focus on the recognition issues for the anticipated costs of each phase and expected revenue streams. Looking forward to working with you."
Required - Based on the information above, what is the key financial reporting issue for the recognition of Project InfoCare costs in NewCare's financial statements for the year ended 31 December 2022?
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