AASB1011: Financial Accounting- Report Writing Assignment Solution

Financial Accounting Report

Financial Accounting

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AASB 1011 specifically mentions rules for deferral in this regard:

• R&D costs ought to be expensed as incurred except where such costs are expected beyond any reasonable doubt to be recoverable in which case they are deferred.
• Basic research costs ought to be expensed as incurred as these do not have practical application.
• Applied research costs ought to be deferred where they are related to projects with future benefits.
• Development costs, ought to be expensed except where such costs are expected beyond any reasonable doubt to be recoverable in which case they are deferred matching with related benefits on the production of the product.
• Deferred R&D costs ought to be reviewed regularly for impairment. If these exceed the recoverable amount at the balance sheet date, then they should be expensed.
• R&D costs which cannot be deferred and are already expensed cannot be written back in the light of subsequent events.
• Disclosure of the R&D costs is required only if they are material.

Applying the above;

Project Alpha

$ 150, 0000 of the expenditure related to 2014 and 2015 related to research ought to be deferred as it is related to a project with certain future benefits up to $ 150,000 matching with related benefits.

Project Beta

50% of the expenditure related to research ought to be deferred as it is related to a project with certain future benefits. 50% of the expenditure related to development ought to be deferred as it is related to a project with certain future benefits matching with related benefits when realized. So $ 400,000 would be deferred in full with proper disclosure.

Project Gamma

$ 250,000 of the expenditure related to research ought to be deferred as it is related to a project with certain future benefits. $ 175,000 of the expenditure related to development ought to be deferred as it is related to a project with certain future benefits matching with related benefits when realized with proper disclosure.

Project Delta

$ 250,000 of the expenditure related to research ought to be deferred as it is related to a project with certain future benefits. $ 750, 000 of the expenditure related to development ought to be deferred as it is related to a project with certain future benefits matching with related benefits when realized with proper disclosure. (Only $ 100,000 revenue is certain for the project). The balance amounting to $ 100,000 does not match with future benefits

expected from the project so these ought to be expensed as incurred.



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Point Addis Ltd. should account for the loss of storage facility at the remote location destroyed by fire on 10 June 2013 as a prior period material error.

AASB 108 includes omissions from financial statements from the prior periods due to mistakes, oversights and lack of reliable information as valid prior period items.

Presuming that the 2013 statements have already been issued when the loss was discovered, AASB 108 also requires the preparation of the comparative statement in 2014 by restating the 2013 statements.

Footnote to the income statement and balance sheet should refer to the detailed note on this item highlighted separately as the unreported loss is a material error.

Disclosures should include the nature of the loss by fire; the restated correction for 2013 line items and the amount of correction made in 2014.

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