Stag, a public limited company, is preparing its financial statements for the year ending 31 December 2021. Stag plc started a project on 1 January 2021. The initial costs of setting up the project incurred before 2021 were £2 million. From 1 January 2021 to 31 March 2021 ongoing project costs were £15,000 per month. On 1 April 2021, the project was considered to be technically feasible and commercially viable and from this date, project costs increased to £65,000 per month. From 1 July 2021 to 30 August 2021, additional £1.5 million was spent for the design and construction of a pilot for the project. This pilot is not capable of operating on a scale economically feasible for commercial production. From 1 September 2021 to 31 December 2021, additional £350,000 were also spent for testing of the pilot. Between 1 April 2021 and 31 December 2021, Stag spent £140,000 on research staff, £50,000 on initial staff training, and 30,000 on initial marketing plan. The project was not completed at 31 December 2021. Stag charged all the costs to complete the project to administrative expenses. Require: According the context, discuss, with the reference to IAS 38: Intangible Assets, the correct accounting treatment for all the costs incurred in relation to the research project for the year ended 31 December 2021. (Hint: use the definitions of “research” and “development”).
Stag, a public limited company, is preparing its financial statements for the year ending 31 December 2021.
Stag plc started a project on 1 January 2021. The initial costs of setting up the project incurred before 2021 were £2 million. From 1 January 2021 to 31 March 2021 ongoing project costs were £15,000 per month. On 1 April 2021, the project was considered to be technically feasible and commercially viable and from this date, project costs increased to £65,000 per month. From 1 July 2021 to 30 August 2021, additional £1.5 million was spent for the design and construction of a pilot for the project. This pilot is not capable of operating on a scale economically feasible for commercial production. From 1 September 2021 to 31 December 2021, additional £350,000 were also spent for testing of the pilot. Between 1 April 2021 and 31 December 2021, Stag spent £140,000 on research staff, £50,000 on initial staff training, and 30,000 on initial marketing plan. The project was not completed at 31 December 2021. Stag charged all the costs to complete the project to administrative expenses.
Require:
According the context, discuss, with the reference to IAS 38: Intangible Assets, the correct accounting treatment for all the costs incurred in relation to the research project for the year ended 31 December 2021. (Hint: use the definitions of “research” and “development”).
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