PAST EXAM JUL 2017QUESTION 3a.The appropriate accounting treatment and development cost incurred for the year ended 31December 2015 is the cost incurred for the research cannot be recognized as an intangibleasset since there is no probability that the future economic benefit. That are attributable tothe asset will flow to the entity. Therefore, the research expenditure of RM100,000 isrecognized as expense in Statement of Profit and Lost for the year ended 30 December 2015which one the toy was designed to help children with slow leaning abilities and the companyhas the technical feasibility to complete the product and therefore started its developmentphase. The development cost of RM250,000 should also be recognized as expense inStatement of Profit and Lost since it did not meet the recognition criteria for capitalization ofwhich there is no prospect of the product to be sold in the market because the toy is newproduct and has not tasted in the market. So Happy Toy Bhd has not confidence on theprospect of the product to be marketable.b.The appropriate accounting treatment of the useful life of Toboy to be adopted by Happy ToyBhd is Happy Toy Bhd should not treat Toboy as having indefinite useful life because Toboyis still new in the market with no proven track record. Toboy should have a finite useful lifeand need to be amortized on a systematic basis over that useful life. The amortization methodshould reflect the pattern of benefits but if the pattern cannot be determined reliably, thenstraight line method should be used. According the statement, the product was officiallylaunched into the market in January 2017 and anticipate that the product will generate forhigh profit margins which the company very confident that the product will be in the marketfor long time even though there is no proven track record yet.
