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GDB No: 01

HRSS Engineering Limited - a multinational company working in Pakistan is principally engaged in providing engineering and operational support services to its Pakistani customers and various European countries as well. It works for projects related to Energy, manufacturing, construction and plant maintenance. Company is enjoying strong market reputation owing to its excellent quality services and prompts responses towards its customers.

Recently, HRSS has received an order from one of its client Melto Ltd. (engaged in power sector) to develop a newly designed Heat Recovery Steam Generator. Before going into its manufacturing, HRSS has to conduct a laboratory research and build a prototype for Melto. Upon the successful demo, its commercial production would be started to execute the order.

To finance this Research & Development activity, HRSS incurred a total budget of Rs. 1.0 million. Following costs were incurred by the company in pursuance of its research and development:

  • Rs 200,000 were paid to the researchers engaged in the research process. Whereas, administration cost incurred to supervise this phase was Rs. 100,000.
  • Material of Rs. 400,000 was purchased for developing the prototype.
  • First model was tested at a cost of Rs. 150,000 to ensure that it operates properly according to the customer’s demand. Meeting was called and expert engineers were invited for introduction of new product. Total cost incurred for this purpose was Rs. 75, 000.
  • A prototype was tested in the controlled environment to check customers’ acceptance for the design at a cost of Rs. 150,000. Sample was proved to be acceptable by customers.

 

Required:

1.   Determine research cost incurred on the project.                                                  (0.50)

2.   Determine development cost associated with the project.                                      (0.50)

3.   Which cost needs to be capitalized as per IAS 38?                                               (0.50)

4.   Give arguments in support of your answer in 3 above in the light of IAS 38.           (0.50)

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Replies to This Discussion

yes 

aj last date ha is to the point bat kryn......plz

jaldi kryn na

bta to dia sb jo poocha

jo cost capitalize krni ha wo amount 750000 ha kia ye theek ha ?

is k ilava total cost incurred bi 750000 ha kia?

carry on hurry up

1. 200000 & 100000 = 300000
2. 700000
3. nil
4. khd try kroo

GDB answer limit is only with in 100 words

please any one tell me what is the actual amount of development cost and also tell me we are answering the GDB in calculation or in theory  

4th ka theory me daina he, jis me ye clarify krna he keh 3rd ka answer kese aya?

4th ma hum ye explain krenge k R&D cost capitalize kyun ni krte.....am i right or not??? 

yes u r right

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