Question

After years of research had been conducted at significant cost, Blanco Chemical Company determined a fertilizer they had been developing was possible to bring to production, intended to do so, and had the means by which to accomplish that. They then spent an additional $5,000,000 in development efforts to obtain a patent.
1.. According to IAS 38 (Intangible Assets), how should Blanco Chemical Company record the $5,000,000?
O as a "Deferred Development Cost" on the Balance Sheet.
O as "Fertilizer Revenue" on the Income Statement.
O as "Development Expense" on the Income Statement.
O It should only be reported in the notes to the financial statements.

Answer 1

Answer:

Development cost" on the balance sheet.

Explanation:

Development costs on balance sheet are capitalised only after technical and commercial feasibility of the asset for sale or use have been established. This means that the entity must intend and be able to complete the intangible asset and either use it or sell it and be able to demonstrate how the asset will generate future economic benefits" or value. Being measured at 500,000, it has the ability to affect the asset.

Answer 2

Answer:

as a "Deferred Development Cost" on the Balance Sheet.

Explanation:

IAS 38.57 QUOTED

"Development costs are capitalised only after technical and commercial feasibility of the asset for sale or use have been established. This means that the entity must intend and be able to complete the intangible asset and either use it or sell it and be able to demonstrate how the asset will generate future economic benefits"

The cost is measured (500,000) has the intention and resources to complete the asset and is possible to bring into production so it is possible to capitalize it