During the year ended 31 December 20X1, David&Sons spent ₦300,000 on researching and

developing a new product. The entity has recognised the ₦300,000 as an intangible asset. A
breakdown of the expenditure is provided below:

Research into materials ₦100,000

Market research ₦ 50,000

Employee training ₦ 30,000

Development activities ₦120,000

The expenditure on development activities was incurred evenly over the year. It was not until 1
May 20X1 that market research indicated that the product was likely to be profitable. At the
reporting date, the product development was not yet complete. Required: Discuss the correct
accounting treatment of the research and development expenditure in the year ended 31 December
20X1.

2.

Dums Innovate Ten years ago, developed a video game called 'Motor Grind”. This game sold
over 10 million copies around the world and was extremely profitable. Due to its popularity, Dums
Innovate release a new game in the Motor Grind series every year. The games continue to be best-
sellers. The directors have produced cash flow projections for the Motor Grind series over the next
five years. Based on these projections, they have prudently valued the Motor Grind brand at ₦20m
and wish to recognise this in the statement of financial position as at 30 September 20X3. On 30
September 20X3, the company also paid ₦11m for the rights to the gold Mine videogame series
after the original developer went into administration. Required: Discuss the accounting treatment
of the above in the financial statements of Innovate for the year ended 30 September 20X3.