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Bankstown Limited was involved in a highly successful plastics manufacturing business. It...

Question:

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:

a. $30,000

b. $70,000

c. $250,000

d. $275,000

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

=$70,000

The answer is thus B.


Learn more about this topic:

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What Are Intangible Assets? - Definition & Types

from Accounting 101: Financial Accounting

Chapter 9 / Lesson 12
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