Jackson Plc is developing computer software for use in its courier delivery service business.So far the company had spent £50 000 but the software is still unfinished and not expected to be finished in time for the preparation of the reports.As a result,the company had to purchase a computer package amounting to £100 000 to finalise its accounts.There is no further use for the unfinished software as it is expected that the purchased computer package could be used by the entity for another 10 years.Which accounting treatment would be consistent with the Conceptual Framework?
A)recognise an asset of £150 000
B)recognise an expense of £150 000
C)recognise an asset of £100 000 and expense of £50 000
D)recognise an asset of £50 000 and expense of £100 000

Question

Quizplus · Accepted Answer

According to the Conceptual Framework, an asset is defined as a resource controlled by an entity as a result of past events, from which future economic benefits are expected to flow to the entity. In this case, the purchased computer package meets this definition of an asset, as it will provide future economic benefits to Jackson Plc for the next 10 years. Therefore, the entity should recognise an asset of £100,000 for the purchased computer package. 
However, the £50,000 spent on developing the unfinished software does not meet the definition of an asset as there are no future economic benefits expected to flow from it. Therefore, this amount should be recognised as an expense. As a result, the correct accounting treatment would be to recognise an asset of £100,000 and an expense of £50,000.

Jackson Plc Is Developing Computer Software for Use in Its