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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Paola

15 days ago

I bet the CIMA accountant at BC is just sitting there, calculator in hand, trying to make sense of all this. 'Capitalize, don't capitalize, expense, amortize... Somebody call the auditor, we need backup!'

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Corazon

19 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

24 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

17 days ago

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

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2 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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2 months ago

I think we should expense the development costs to profit or loss because the project will be completed this year.

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