Financial Accounting Report: ACC2115, Semester 2, Business Development

This financial accounting report examines the treatment of business development and research costs, specifically focusing on a case study involving a company's marketing budget, customer lists, and related expenses. The report analyzes the application of accounting standards AASB 1011 and IAS 38, addressing the inclusion and deferral of costs, and the treatment of intangible assets. It provides detailed insights into the accounting treatment of various costs, including salaries, marketing expenses, and potential asset recognition. The report further includes a letter of advice, addressing a client's concerns regarding the accounting treatment of these expenses, and provides a clear explanation of the relevant accounting standards and their implications. The report concludes with a summary of the accounting treatment and relevant recommendations.

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FINANCIAL ACCOUNTING

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Contents
Introduction:...............................................................................................................................3
Inclusion in the business development and research costs:.......................................................3
Deferral of the business development and research costs:.........................................................3
Costs that did not qualify as business and development costs:..................................................4
Disclosure requirements:............................................................................................................4
Conclusion:................................................................................................................................4
References..............................................................................................................................7

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Part 1:
Introduction:
In the case given, the company incurs an amount of $800,000 along with the wage cost of an
amount of $200,000 each year towards maintaining the customer lists or the database. This
means that the company incurs a huge amount of expense towards developing its business
and for researching the target customers etc. now, the company was approached by an IT
company that it would be selling another customer list based on their app at the rate of
$500,000 which would contain the names of the Australian customers only. These are the
facts that relate with the company.
Also, in the given case, Curly stated the fact that during the previous 2 financial years, the
profit of the company was understated due to the reason that these expenses were treated as
expenses whereas according to him, these are brand names and hence, must be classified as
assets in the statement of final accounts.
As per AASB 1011 which deals with the stated costs, all of the such costs that are spent
towards the acquisition of any new knowledge or towards the development of any new
product or to improve the product which is currently in existence have to be either charged as
against the revenue for the current year or be capitalised in the cost of the product.
Inclusion in the business development and research costs:
As per the accounting standard, the following are the costs that are included in the costs
pertaining to business development:
In the given case study, all of the amounts that have been spent towards the business for the
purposes of conducting the research by the company, such of the amounts shall be added
together and would be considered as the costs incurred towards the business research and
development. Hence, the amount of the marketing, salaries etc incurred by the company
would come under the cost of business research and development. The amount of the
depreciation of equipment and the facilities’ to the tune used for the activities of research and
development, the amount of the expense of amortisation of the other assets, such as the
patents and the licenses, to the tune the same are connected with the activities of research and
development, the amounts of the costs that are incurred by the company while conducting the
activities of research and development, the costs that are connected directly with the activities

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of research and development as are connected with the specific projects, would come under
the purview of this accounting standard (AASB, 2019).
Deferral of the business development and research costs:
The accounting treatment of the above stated costs would be reported in the statement of
profit and loss. Further, this accounting standard states that all of the costs that are incurred
during the financial year in relation with any project in respect of which the benefits are not
reasonably recoverable, such costs would be deferred to be charged to the future years. This
means that such of the costs shall not be charged in the profit and loss statement of the
current year. With regard to such of the costs incurred by the company towards research and
development, these would be amortised over the future financial years to lay in line with the
benefits that are received by the company in respect of such of the project. This means that
as per the matching concept of accounting, all of the costs related with the business research
and development would be charged as against the revenue that would the company would
receive from that business research and development. As per the accounting standard, the
amount of the amortisation of this deferred research and development would be reviewed on
an annual basis and as at the end of the balance sheet. This amount shall be determined per
the amount which is over and above the recoverable amount. Any excess amount shall be
charged in the statement of profit and loss during the current year.
Costs that did not qualify as business and development costs:
All of the costs and the expenses that are spent by the company towards developing the
research and to develop the business and that meets the criteria of deferral would come under
the purview of the accounting standard and this amount would be reported in the statement of
profit and loss.
The research and the development costs that previously did not meet the criteria for deferral
as was specified under this standard would not be written back to the statement of profit and
loss in any subsequent events. All the information pertaining to these costs shall be disclosed
in the financial statements.
Disclosure requirements:
The accounts and the group of accounts have to make the following disclosures:

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 The amount that has been spent in by the company would be reported in the books of
accounts and this is done before considering the amount which has been received as
grant by the company
 The amount that has been spent in by the company which has been kept to be reported
in the future would be reported in the books of accounts and this is done before
considering the amount which has been received as grant by the company
 The amount of the deferred research and the cost of development as at the end of the
preparation of the annual accounts would include the accumulated amortisation that
should be disclosed separately in the books of accounts.
 The basis of the amortisation of the research and development costs (AASB, 2019).
Conclusion:
In the light of the above stated provisions and the facts given in the case, all the expenses be
it the salaries and wages, marketing costs including the new offer of the customer list would
be charged in the statement of profit and loss. Also, as per the provisions of the accounting
standard, even if the previous expenses and the costs pertaining with the business research
and development have been treated as expenses, then also, such of the expenses cannot be
treated as assets for the company in any subsequent year.
Part 2:
September 13, 2019
Zeeman
341 Company
XYZ Lane, MNY State,
[e-mail]
Dear Mr./Ms. Amway,
I do understand your concern with regard to the accounting treatment of the expenses that
have bene incurred by the company in respect of business development and research and in
the stated case, I would like to help your goodself with the provisions of the relevant
accounting standard.

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Case under purview:
In the case given, the company incurs an amount of $800,000 along with the wage cost of an
amount of $200,000 each year towards maintaining the customer lists or the database. This
means that the company incurs a huge amount of expense towards developing its business
and for researching the target customers etc. now, the company was approached by an IT
company that it would be selling another customer list based on their app at the rate of
$500,000 which would contain the names of the Australian customers only. These are the
facts that relate with the company (IAS plus, 2019).
Also, in the given case, Curly stated the fact that during the previous 2 financial years, the
profit of the company was understated due to the reason that these expenses were treated as
expenses whereas according to him, these are brand names and hence, should be reported as
assets in the financial statements.
Provisions:
With regard to the business development and research expense, the relevant standard is IAS
38 which deals with the intangible property. This is defined as the non-monetary asset which
is not capable of being touched. An intangible asset has the attributes of identifiability,
control, and the future economic benefits. The examples of an intangible asset includes
patented technologies, computer software’s, databases etc, video and audio-visual material,
customer lists, mortgage servicing rights, licensing, royalty and the standstill agreements,
customer and supplier relationships etc.
With regard to the recognition of such costs, the standard requires the company to recognise
such of the intangible, either when the same is purchased or is self-created by the company.
The company can consider costs as an intangible asset only when it is probable that some
future economic benefits would flow into the entity and when the costs that are being
incurred towards the business development and research are capable of being measured with
reliability. This holds true no matter if the intangible assets have been generated generally or
have been acquired by the company. This standard includes the additional criteria of
recognition for the assets that have been generated internally by the company. This additional
recognition criteria would include the probability of the future economic benefits that would
flow into the entity which exist over the useful life of the asset. The probability of the future
economic benefits are based upon the reasonable and the supportable assumptions with
regard to the conditions that exist over the life of the asset. This criteria of this recognition is

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considered to have been met if the assets are acquired as part of the business combination or
that have been acquired separately.
Accounting treatment:
With regard to the initial recognition, all of these research and development costs would be
changed as an expense for the current year. In case, the company is not able to segregate the
costs that have been incurred between the research or the development phase, then the costs
would be assumed to have been incurred during the research phase only.
With regard to the subsequent expenditure that is incurred on the business development or the
customer lists as have bene given in the question, the expense incurred would be charged in
the statement and profit and loss during the current year (IAS plus, 2019).
Conclusion:
In the light of the above stated provisions and the facts given in the case, all the expenses be
it the salaries and wages, marketing costs including the new offer of the customer list would
be charged in the statement of profit and loss. Also, as per the provisions of the accounting
standard, even if the previous expenses and the costs pertaining with the business research
and development have been treated as expenses, then also, such of the expenses cannot be
treated as assets for the company in any subsequent year.
I hope that the above was helpful and in case, of any concerns or doubt, please do let me
know.
Sincerely,
Lily

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References
Aasb.gov.au. (2019). Accounting For Research and Development Costs. [online] Available
at: https://aasb.gov.au/admin/file/content102/c3/AASB1011_5-87.pdf [Accessed 13 Sep.
2019].
Aasb.gov.au. (2019). Intangible Assets. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB138_08-15_COMPoct15_01-18.pdf
[Accessed 13 Sep. 2019].
Iasplus.com. (2019). IAS 38 — Goods required for promotional activities. [online] Available
at: https://www.iasplus.com/en/meeting-notes/ifrs-ic/2017/june/ias-38 [Accessed 13 Sep.
2019].
Iasplus.com. (2019). IAS 38 — Intangible Assets. [online] Available at:
https://www.iasplus.com/en/standards/ias/ias38 [Accessed 13 Sep. 2019].