Bankstown Limited was involved in a highly successful plastics manufacturing business. It commenced a project to design a more efficient extrusion system for its plastic pipes. The following outlays occurred: September: researcher salaries $30,000; October: research materials $40,000; November: re-development of the extrusion plant $250,000; December: final adjustments to the extrusion plant $25,000. The amount to be expensed by Bankstown Limited at the end of the financial year, 31 December, is:
What Is A Research Expense:
It is common for companies that perform significant research and development to capitalize a portion of their costs. In all cases, however, research costs must be expensed because the gathering of information does not have any future economic benefit.
Answer and Explanation:
The portion of costs to be expensed, assuming the project is technically feasible and meets the requirements for a Development asset to be recorded, are the research costs (i.e. the costs required to gather preliminary information before the development commences).
Therefore we must expense:
= Research materials + Research salaries
= 30,000 + 40,000
The answer is thus B.
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from Accounting 101: Financial AccountingChapter 9 / Lesson 12