Exercise 1

The cost to be accounted for capitalised:

Consulting fees
Allocation of time spent by internal employees
Training for new staff
Total
The cost to be accounted for expensed:
Cost of closing factory X, including the cost of terminating some existing contracts
and redundancy payments for staff
Cost of feasibility study carried out by external consultants to determine the best
system for factory

Cost of relocating key staff to the town where factory Z is located. The staff are
not contracted to remain with the company, but they are grateful for their jobs.

Efficiency losses in early production stages

Campaign specifically to advertise the new technology being used
Total
 550,000
150,000
40,000
740,000

ome existing contracts

1,000,000

o determine the best

90,000

cated. The staff are

50,000
eful for their jobs.

30,000
g used 20,000
1,190,000
Exercise 2
The cost that can be recognised and capitalised is:
Cost of new solar technology 1,500,000
(-) Less trade discount provided (200,000)
(+) Plus Initial testing of new technology 20,000
1,320,000
Exercise 7
The treatment in Baxter plc's Financial statement at 31 May 2009 will be as follows:

1. The firm completed a big marketing and advertising campaign costing £2.4m. The finance dire
campaign on the basis that it would create £5m of additional profits over the next th

Marketing and advertising campaign: no asset will be recognised, because it is not possible to identify future
attributable only to this campaign. All of the expenditure should be expensed in the statement of comprehen

2. A new product was developed during the year. The expenditure totalled £1.5m of which £1m w
November 2008, the date on which it became clear that the product was technically viable. The new
the next four months and its recoverable amount is estimated at £700,000

New product: development expenditure appearing in the statement of financial position will be valued at £
prior to the date on which the product becomes technically feasible is recognised in the statement of compre

3. Staff participated in a training programme which cost the company £300,000. The training or
presentation to the directors of Baxter outlining that incremental profits to the business over the ne
£500,000.

Training programme: no asset will be recognised, because staff are not under the control of Baxter plc and w
the training, whatever they may be, also leave.
follows:

osting £2.4m. The finance director had authorised this

itional profits over the next three years.

is not possible to identify future economic benefits that are

d in the statement of comprehensive income.

totalled £1.5m of which £1m was incurred prior to 30

s technically viable. The new product will be launched in
mount is estimated at £700,000

cial position will be valued at £500,000. The expenditure

ised in the statement of comprehensive income

any £300,000. The training organisation had made a

its to the business over the next twelve months would be

r the control of Baxter plc and when staff leave the benefits of
Exercise 10
1/1/20X1 DR Licence 10,000
CR Cash 10,000
31/12/20X1 DR Amortization Expence 2,000
CR Accumulated Amortization 2,000
31/12/20X2 DR Amortization Expence 2,000
CR Accumulated Amortization 2,000
CA 6000
FV 12000
upward 6000
Net method
DR Accumulated Amortization 4,000
CR Licence 4,000
DR Licence 6,000
CR Revaluation Surplus (OCI) 6,000