Recognition and derecognition of parts An entity buys a piece of machinery with an estimated useful life of ten years for €10 million. The asset contains two identical pumps, which are assumed to have the same useful life as the machine of which they are a part. After seven years one of the pumps fails and is replaced at a cost of €200,000. The entity […]

Research phase and development phase under IAS 38 Entity K is working on a project to create a database containing images and articles from newspapers around the world, which it intends to sell to customers over the internet. K has identified the following stages in its project: (a) Research stage – gaining the technical knowledge necessary to transfer images to customers and assessing whether the […]

British Airways Plc (2010) Notes to the accounts [extract] 2 Summary of significant accounting policies [extract] Property, plant and equipment [extract] B Fleet All aircraft are stated at the fair value of the consideration given after taking account of manufacturers’ credits. Fleet assets owned, or held on finance lease or hire purchase arrangements, are depreciated at rates calculated to write down the cost to the […]

L”Air Liquide S.A. (2011) Accounting policies [extract] 5. Non-current assets [extract] b. Research and Development expenditures Research and Development expenditures include all costs related to the scientific and technical activities, patent work, education and training necessary to ensure the development, manufacturing, start-up, and commercialization of new or improved products or processes. According to IAS 38, development costs shall be capitalized if, and only if, the […]

Merck KGaA (2011) Accounting Policies [extract] Research and development The breakdown of research and development costs by division and region is presented under Segment Reporting. In addition to the costs of research departments and process development, this item also includes the cost of purchased services and the cost of clinical trials. The costs of research and development are expensed in full in the period in […]

Bayer AG (2011) Consolidated Financial Statements – Notes [extract] 4 Basic principles, methods and critical accounting estimates [extract] RESEARCH AND DEVELOPMENT EXPENSES For accounting purposes, research expenses are defined as costs incurred for current or planned investigations undertaken with the prospect of gaining new scientific or technical knowledge and understanding. Development expenses are defined as costs incurred for the application of research findings or specialist […]

ASOS plc (2012) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2012 [extract] 1) ACCOUNTING POLICIES [extract] b) Intangible assets [extract] Other intangible assets The costs of acquiring and developing software that is not integral to the related hardware is capitalised separately as an intangible asset. This does not include internal website development and maintenance costs which are expensed as incurred unless […]

Accounting for upward and downward revaluations Entity E acquired an intangible asset that it accounts for under the revaluation model. The fair value of the asset changes as follows: £ Acquisition 530 Date A 550 Date B 520 Date C 510 Date D 555 The diagram below summarises this information (the impact of amortisation on the carrying amount and revaluation surplus has been ignored in […]

Assessing the useful life of an intangible asset Acquired customer list A direct-mail marketing company acquires a customer list and expects that it will be able to derive benefit from the information on the list for at least one year, but no more than three years. The customer list would be amortised over management”s best estimate of its useful life, say 18 months. Although the […]

Output-based versus revenue-based amortisation Entity Z acquires a 5 year licence to manufacture a product for a cost of £1,220,000. It is expected that the production line used for making the product has a capacity of 100,000 units per year. The entity plans to produce at full capacity each year. However, it expects the price per unit to be £10 in year 1 and increase […]