CIMA Exam CIMAPRA19-F01-1 Topic 6 Question 87 Discussion

Actual exam question for CIMA's CIMAPRA19-F01-1 exam

Question #: 87
Topic #: 6

BC manufactures product X and on 1 February 20X4 started a project to develop a new material for use in its production. The development project is due to be completed by 31 December 20X4 with the new material being used in production from 1 January 20X5. The development project costs have been reliably estimated at $200,000 and it is anticipated that the new material will increase the margin achieved on product X by 20%.

You are a CIMA accountant within BC and are considering how to treat the development costs of $200,000 in the financial statements for the year ended 31 December 20X4.

In accordance with the ethical principle of professional competence and due care, which of the following statements correctly explains how these costs should be accounted for?

AExpense to profit or loss because the development project will be completed by the end of the year.

BExpense to profit or loss because the development has not changed the nature of product X.

CCapitalise and amortise from 1 February 20X4 because this is the date that the project commenced.

DCapitalise but do not amortise until 1 January 20X5 because this is the date that the new material will start to be used.

Show Suggested Answer

Suggested Answer: D

by Leatha at May 09, 2024, 06:02 PM

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Corazon

3 days ago

Wait, so they're developing a new material for product X, but it's not actually changing the product? Sounds like they're just putting lipstick on a pig, if you ask me.

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Jarvis

8 days ago

Option B is a bit of a head-scratcher. Just because the development hasn't changed the nature of the product, doesn't mean the costs shouldn't be capitalized. I think the accountants at BC are going to have their work cut out for them on this one.

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Whitney

20 hours ago

I think option B is overlooking the fact that the new material will increase the margin on product X.

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Evan

14 days ago

I'm going with option D. Capitalizing the development costs and amortizing them from the date the new material is used in production makes the most sense to me. It's all about matching the costs with the benefits, right?

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Micah

25 days ago

Hmm, I'm not sure. Option A seems reasonable since the project will be completed by the end of the year, so the costs should be expensed. But then again, the new material will be used in production from next year, so maybe option D is the way to go.

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Marnie

13 days ago

I think option A makes sense because the project will be completed this year.

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Stevie

1 months ago

I see both points, but I think we should consider the increased margin on product X and capitalise the costs to match the revenue generation.

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Maynard

1 months ago

I think option D is the correct answer. The development costs should be capitalized because the new material will be used in production from 1 January 20X5, even though the project is completed by the end of the year. Amortization should start from that date as well.

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