Walking on Air Is Developing a New Form of Individual

question 50

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 2004 are: 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 2004 and what amount should be amortised in the year ended 30 June 2006 (rounded to the nearest dollar) ?

• A) Expensed in 2004: $1 200,000 Amortisation in 2006: $100,000
• B) Expensed in 2004: $950,000 Amortisation in 2006: $216,667
• C) Expensed in 2004: $950,000 Amortisation in 2006: $65,000
• D) Expensed in 2004: $1,200,000 Amortisation in 2006: $30,000
• E) Expensed in 2004: $160,000 Amortisation in 2006: $160,000

---

Definitions:

Internal Rate of Return

A financial metric used to estimate the profitability of potential investments, calculated as the rate at which the net present value of costs equals the net present value of benefits.

Discount Factor

A multiplier used to determine the present value of a future cash flow, reflecting the time value of money.

Cash Inflows

The total amount of money coming into a business from various sources, such as sales, investments, and financing activities.

Intangible Benefits

Advantages or gains that cannot be easily measured or quantified, such as brand reputation or employee morale.