week 3 Question

week 3 Question - 2006s2 Final Exam QUESTION 3 (17 MARKS):...

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2006s2 Final Exam QUESTION 3 (17 MARKS): ACCOUNTING POLICY CHOICE AND PROFESSIONAL ETHICS (Please note that most parts of this question may not be relevant in the 2010s2 Mid-Semester Test. The relevant parts are in blue font. ) Innovamatics Ltd is a software technology company which commenced its operations at the beginning of 2006. It plans to list on the Australian Stock Exchange in 2008. The company believes that it can start selling its software programme from 2007 (Sales forecasts are in the Income Statement below). The software programme is to be sold and delivered (i.e. downloaded) via the Internet, thus allowing the company to avoid product sales and delivery costs. The Chief Technology Officer (CTO) believes that the company needs to carry out “research and development” activities throughout its lifecycle to keep up with the ever-changing computer technologies. The following schedule provides the expected expenditure on research and development. Expected expenditure: ($000s) 2006 2007 2008 2009 Research 1,000 600 Development 600 600 The company’s current accounting policy for “research and development costs” is as follows: Research Immediate expensing Development 3 years straight line amortisation The summary forecast income statement is as follows: Summary Forecast Income Statement ($000s) 2006 2007 2008 2009 Sales 0 500 1,000 2,000 Less: Operating Expenses 200 300 400 500 Expenses relating to: Research 1,000 600 Development 200 200 400 Total Expenses 1,200 500 1,200 900 Net profit before tax (1,200) 0 (200) 1,100
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week 3 Question - 2006s2 Final Exam QUESTION 3 (17 MARKS):...

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