Thirsty plc makes a revolutionary type of can called Soak. The can has a resealable top which allows the can to be sealed after opening to prevent gas escaping. In January 2019 the idea for this new product was launched, and a loan of £5 million was obtained from Sunshine Bank in order to finance this project. The associated costs and activities for the year ended 31 May 2020 are as shown below: 01 June 2019 – 31 July 2019: £30,000 per month on market surveys to establish whether or not consumers would want such can. The market surveys suggest that there is a market for the can amongst environmentally aware consumers. • 01 August 2019 – 30 September 2019: £100,000 - for evaluation of a number of alternative prototypes and designs. End of September 2019: a design is chosen and engineers produce a plan which indicates that is technically possible to produce the Soak can. 01 October 2019 -31 January 2020: £1,300,000 was spent for the design and construction of a pilot manufacturing plant. This plant is not capable of operating on a scale economically feasible for commercial production. • 01 February 2020 – 31 May 2020: £500,000 for testing of a pilot manufacturing plant. All expenditure incurred has been confirmed by the accounting department. • Thirsty limited has applied to register the Soak can as a patent. Required: Discuss, with the reference to IAS 38: Intangible Assets, the correct accounting treatment for all the costs incurred in relation to the Soak can for the year ended 31 May 2020. (Hint use the definitions of "research" and "development").
Thirsty plc makes a revolutionary type of can called Soak. The can has a resealable top which allows the can to be sealed after opening to prevent gas escaping. In January 2019 the idea for this new product was launched, and a loan of £5 million was obtained from Sunshine Bank in order to finance this project. The associated costs and activities for the year ended 31 May 2020 are as shown below: 01 June 2019 – 31 July 2019: £30,000 per month on market surveys to establish whether or not consumers would want such can. The market surveys suggest that there is a market for the can amongst environmentally aware consumers. • 01 August 2019 – 30 September 2019: £100,000 - for evaluation of a number of alternative prototypes and designs. End of September 2019: a design is chosen and engineers produce a plan which indicates that is technically possible to produce the Soak can. 01 October 2019 -31 January 2020: £1,300,000 was spent for the design and construction of a pilot manufacturing plant. This plant is not capable of operating on a scale economically feasible for commercial production. • 01 February 2020 – 31 May 2020: £500,000 for testing of a pilot manufacturing plant. All expenditure incurred has been confirmed by the accounting department. • Thirsty limited has applied to register the Soak can as a patent. Required: Discuss, with the reference to IAS 38: Intangible Assets, the correct accounting treatment for all the costs incurred in relation to the Soak can for the year ended 31 May 2020. (Hint use the definitions of "research" and "development").
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Thirsty plc makes a revolutionary type of can called
Soak. The can has a resealable top which allows the
can to be sealed after opening to prevent gas
escaping. In January 2019 the idea for this new
product was launched, and a loan of £5 million was
obtained from Sunshine Bank in order to finance this
project.
The associated costs and activities for the year
ended 31 May 2020 are as shown below:
• 01 June 2019 – 31 July 2019: £30,000 per month
on market surveys to establish whether or not
consumers would want such can. The market
surveys suggest that there is a market for the can
amongst environmentally aware consumers.
• 01 August 2019 – 30 September 2019: £100,000
for evaluation of
a
number of alternative
prototypes and designs.
• End of September 2019: a design is chosen and
engineers produce a plan which indicates that is
technically possible to produce the Soak can.
• 01 October 2019 -31 January 2020: £1,300,000
was spent for the design and construction of a
pilot manufacturing plant. This plant is not capable
of operating on a scale economically feasible for
commercial production.
01 February 2020 – 31 May 2020: £500,000 for
testing of a pilot manufacturing plant.
• All expenditure incurred has been confirmed by the
accounting department.
• Thirsty limited has applied to register the Soak can
as a patent.
Required:
Discuss, with the reference to IAS 38: Intangible
Assets, the correct accounting treatment for all
the costs incurred in relation to the Soak can for
the year ended 31 May 2020. (Hint use the
definitions of "research" and "development").
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