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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.



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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Views: 4664

Replies to This Discussion

yes  coZ main b aysa kiya hai 

3rd ka answer none of the cost are needs to capitalized

then apny kahan sy values likhi hain 3rd ki

O_o none? or development costs? :/

Mere khyal se, 3rd mein ayenga. Developments costs capitalized hongi.

2nd ma 700,000 ha yah 775,000

700000 and development cost will be capitalize

4th option???

I think 775000

775,000 kese???????



775000 he sahe answer hy :)

please confuse na karo
Konsi values ain gain Agar values ko capitalie kia jay ga


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