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Environmental Engineering plc is engaged in the development of an environmentally friendly personal transport vehicle. This will run on an electric motor powered by solar cells, supplemented by passenger effort in the form of pedal assistance.
At the end of the current accounting period, the following costs have been attributed to the project:
- (a) A grant of £500,000 to the Polytechnic of the South Coast Faculty of Solar Engineering to encourage research.
- (b) Costs of £1,200,000 expended on the development of the necessary solar cells prior to the decision to incorporate them in a vehicle.
- (c) Costs of £5,000,000 expended on designing the vehicle and its motors, and the planned promotional and advertising campaign for its launch on the market in 12 months’ time.
(i) Explain, with reasons, which of the above items could be considered for treatment as deferred development expenditure, quoting any relevant International Accounting Standard.
(ii) Set out the criteria under which any items can be so treated.
(iii) Advise on the accounting treatment that will be afforded to any such items after the product has been launched.
Purchases of a certain product during July were:
July 1 100 units @ £10.00
July 12 100 units @ £9.80
July 15 50 units @ £9.60
July 20 100 units @ £9.40
Units sold during the month were:
July 10 80 units
July 14 100 units
July 30 90 Units
Assuming no opening inventories:
(a) Determine the cost of goods sold for July under three different valuation methods.
(b) Discuss the advantages and/or disadvantages of each of these methods.
(c) A physical inventory count revealed a shortage of five units. Show how you would bring this