Axis Limited is a Dutch engineering firm that is currently undertaking two projects.
|
Project 1 |
A project concerning sustainable pipelines and drainage system to redirect water flow from a district in Amsterdam. The company has received approval from the city and the project implements new technology which is possible to use. |
Cost: 540€ million |
|
Project 2 |
Research to be conducted that concerns the connecting of two districts within the city of Rotterdam by a new bridge. The research proposal has received positive reviews. |
Cost: 180€ million |
Under IFRS stipulations, the amount capitalized from the two projects is closest to:
A. 720€ million
B. 180€ million
C. 540€ million
Solution: C.
IFRS mandates that companies separately identify research and development phases of projects, for internally-created intangible assets. Additionally, the internal costs incurred to generate the intangible asset during the research phase should be expensed, but those that incurred during the development phase can be capitalized as intangible assets, if the project is technologically possible, the company has shown that it is able to use or sell the resulting asset, and shown its ability to complete the project. Axis Limited can capitalize 540€ million of the first project because it meets the requirements of development.
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