Jackson Ltd 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 package could be used by the entity for another ten years.Which accounting treatment would be consistent with the 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.
E)None of the given answers.

Question

Quizplus · Accepted Answer

The appropriate accounting treatment for Jackson Ltd's situation should be consistent with the principles outlined in the accounting framework, such as the International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP), depending on the jurisdiction in which the company operates.
Based on the information provided:
1. The $50,000 spent on the development of the unfinished software should be considered an expense if the software will not be completed and there is no future economic benefit expected from it. This is because the software does not meet the criteria for recognition as an intangible asset, which typically requires that it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity, and the cost of the asset can be measured reliably.
2. The $100,000 spent on purchasing the computer package that will be used for the next ten years should be recognized as an asset. This is because the computer package is expected to provide future economic benefits to the company over its useful life.
Therefore, the correct accounting treatment would be to:
- Recognize an expense of $50,000 for the development costs of the unfinished software, as it provides no future economic benefit.
- Recognize an asset of $100,000 for the computer package, which will be amortized over its useful life of ten years.
The most appropriate answer from the given options would be:
3. Recognize an asset of $100,000 and expense of $50,000.
This treatment aligns with the accounting principle that expenses should be recognized when there is no future economic benefit and assets should be recognized when the expenditure results in a resource that is expected to provide future economic benefits to the entity. The cost of the computer package is capitalized as an asset and will be subject to depreciation over its useful life, reflecting the consumption of economic benefits over time.

Jackson Ltd Is Developing Computer Software for Use in Its