Please show working will award full point Thank you Sweet Limited, a New Zealand
ID: 2371776 • Letter: P
Question
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Sweet Limited, a New Zealand ice-cream manufactory, is trying to develop a new flavour of ice-cream. The marketing department conducted a survey in August 2011 to assess consumer preference for the best flavour(s). The survey result shows that hazel-nuts toffee flavour is the most popular one in NZ and Australia. The cost of the survey is $20,000.
The production department needs to identify some possible suppliers for the hazel-nuts and coffee beans used in producing toffee flavour ice-cream. The traveling expenses in visiting possible suppliers and checking on quality of the raw materials amount to $30,000. These expenses were incurred during November 2011 to February 2012.
In April 2012, the production department produced some hazel-nuts toffee ice-cream for testing. The cost of producing these ice-creams was $25,000. These ice-creams are used for another marketing research. The second round research costs amount to $15,000. This time the consumers were asked to evaluate the taste and to determine how much they would like to buy it for. After a few more rounds of testing in May and June 2012, consumers show a satisfaction of the taste and they are willing to pay $8 per container (1 litre container). The cost of production is $2.5 per container. The overhead per container is $.50 cent. The marketing department estimates 1 million containers of hazel-nuts toffee ice-cream can be sold annually.
Sweet Limited’s balance date is 31March.
Required:
i) Discuss the accounting treatment of Research and Development costs, stating at which point the hazel-nuts ice-cream project should be capitalised? (Explain with reference to the applicable requirements from NZIAS 38)
ii) Provide journal entries for the income year 2011 and 2012 respectively.
Explanation / Answer
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