Journal Entries, Statement of Comprehensive Income, and Financial Position of Hydan Ltd. (Year Ended

Relevant Journal Entries

Task:

a). In addition to the capitalised development expenditure (of £10,000,000), further research and development costs were incurred on a new project which commenced on 1 January 2017. The research stage of the new project lasted until 31 March, 2017 and incurred £105,000 of costs. from that date the project incurred development costs of £35,000 per month. On 1st July, 2017 the directors are confident that the project would be successful and yield a profit well in excess of its costs. The project is still in development at 31 December, 2017

b). Capitalised development expenditure is amortised at 10% per annum using the straight-line method. All expensed research and development is charged to cost of sales. No depreciation/amortisation has yet been charged on any non-current asset for the year ended 31 December 2017. All depreciation/amortisation is charged to cost of sales.

Requirement:

a. Show relevant journal entries for all the transactions whenever adjustment is needed.

b. Draft the statement of comprehensive income of Hydan Ltd. for the year ended 31st December, 2017

c. Draft the statement of financial position of Hydan Ltd. for the year ended 31st December, 2017

d. Explain the purpose of depreciation according to its definition, and the factors affecting the assessment of useful life according to IAS 16 Property, Plant and Equipment.

e. Distinguish between the cost model and the revaluation model for the measurement of property, plant and equipment subsequent to its initial recognition. Discuss the different impact of the two models on the financial statements.