Walking on Air Is Developing a New Form of Individual $$\begin{array} { | l | l | } \hline \text { Research } & \$ 950000 \\\hline \text { Development costs } & \$ 650000 \\\hline\end{array}$$

question 38

Multiple Choice

Walking on Air is developing a new form of individual transport that will act like a personal hovercraft.Costs for the year ended 30 June 2012 are: $$\begin{array} { | l | l | } \hline \text { Research } & \$ 950000 \\\hline \text { Development costs } & \$ 650000 \\\hline\end{array}$$ Due to the high individual cost of items,sales of this 'prototype' model will be small and generate $100 000 per year over the next 4 years.Following that time,a new and cheaper consumer model will be under production based on the research developed for the prototype; however,it will require additional development expenditure.How much of the research and development cost should be expensed in the period ended 30 June 2012 and what amount should be amortised in the year ended 30 June 2006 (rounded to the nearest dollar) ?

• A)Expensed in 2012: $1 200 000; amortisation in 2014: $100 000
• B)Expensed in 2012: $950 000; amortisation in 2014: $216 667
• C)Expensed in 2012: $950 000; amortisation in 2014: $65 000
• D)Expensed in 2012: $1 200 000, amortisation in 2014: $30 000

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Definitions:

Closeout Sale

A type of sale with significantly reduced prices, aimed at clearing out inventory.

Energy Efficiency

The goal or strategy of reducing the amount of energy required to provide products and services, enhancing operational performance while reducing energy use.

Risk Averse

A tendency to prefer certainty over uncertainty, often by avoiding situations that involve risk.

Economic Loss

A situation where the costs of a business, sector, or economy exceed its revenues, leading to a negative financial result.