Aramis Pte Ltd (Aramis) is a manufacturer of high tech machineries and has a 31 December year end. The
Sword-Fight model is one of many models of high tech machineries that it carries.
Aramis spent significantly on research and development. The research and development costs of the Sword-Fight model were $500,000 and $800,000 respectively. The development costs of the Sword-Fight model are amortized on a straight-line basis over 10 years with zero residual value, starting from 1 January 2011.
The Sword-Fight model has been facing intense competition in recent years from competitors offering value-for-money alternative models. By 31 December 2016, the management of Aramis re-assessed its Sword-Fight model and concluded that the model will have reached the end of its economic useful life in two years’ time. The recoverable amount of the Sword-Fight model is estimated to be $80,000 as at 31 December 2016.
(i) Briefly explain the accounting treatment(s) of the following items in accordance with the relevant Financial Reporting Standards in Singapore:
(a) Research costs (b) Development costs (c) Goodwill
(ii) For the financial year ended 31 December 2016, identify the relevant accounting issues relating to the development costs of the Sword-Fight model and prepare the necessary journal entries where applicable.
(iii) Calculate the amortization expense of the development costs of the Sword-Fight model for the next two financial years after 31 December 2016.
Answer to Question iiThe depreciable amount of an intangible asset with a finite useful life shall be allocated on a systematic basis over its useful life. Amortisation shall begin when the asset…