There Is a Concern That Research and Development May Be

Question 20

Multiple Choice

There is a concern that research and development may be reduced as a result of the new requirements in IAS 38 because: A)Companies will not have the cash available to pay for the research expenses up-front. B)Recognising expenses early will allow for larger profits later, which will help smaller firms. C)The 'horizon problem' suggests managers will not invest in long-term projects that do not immediately increase profits. D)Shareholders are only interested in short-term profits and will not be impressed by strategies that attempt to increase the long-term value of their shares.

Related questions

Q 21

Castle Co Ltd is working on three research projects.Project Jonah is government-sponsored research on synthesising currently available research results on the possible triggers of asthma attacks.Project Beta involves researching the genetic tags associated with heart disease based on the genome project.A test to identify the predisposition to heart disease in children has been developed and will be on the market in 2013.Since 2011 research and development expenditures on this project are applied development costs only.Project Sigma is cutting edge research being conducted to try and discover a means of 'disassembling' molecules and then 'reassembling' them in their original form.The company hopes that this work will lay the basis for future dreams of teleportation as a method of transport.Details of expenditures and recoverable amounts expected beyond a reasonable doubt at this time are: What is the total research and development deferral for each project as at the end of the year 2012? A)Jonah: $15 000; Beta $90 000; Sigma $0 B)Jonah: $20 000; Beta $50 000; Sigma $30 000 C)Jonah: $15 000; Beta $70 000; Sigma $50 000 D)Jonah: $0; Beta $90 000; Sigma $0

Q 22

Serendipity Ltd is working on two independent research and development projects.Project A has recently been fruitful and the resulting product has been marketed,unfortunately with limited success.Development of the product is continuing in an effort to improve its marketability.Project B is due for product release in one year's time.The initial marketing surveys and forward contracts suggest that the outcome for this product is very favourable.The following information relates to the expenditures for the current period and budgeted figures for the next 3 years.All research costs in prior periods were expensed.The budgeted figures are considered accurate beyond a reasonable doubt. What is the research and development deferral for each project in 2013? A)Project A $5000; Project B $0 B)Project A $47 000; Project B $131 000 C)Project A $30 000; Project B $90 000 D)Project A $62 000; Project B $131 000

Q 23

Purchased goodwill is recognised as the amount of: A)the excess of the cost of acquisition incurred by an acquirer over the fair value of the identifiable net assets acquired. B)the difference between the cost of acquisition of a subsidiary and the realisable value of net assets of the subsidiary. C)the lower of the sum of related expenditures on advertising and promotion undertaken in the last two years by the subsidiary being purchased and the independent valuation of the market value of that subsidiary's goodwill. D)the excess of the cost of acquisition incurred by an acquirer over the fair value of the identifiable net assets and contingent liabilities acquired.