Andre Pty Ltd has a 33.3% share in the Wimbledon joint venture (WJV).The manager of WJV only made two transactions in the past year-research and development costs incurred of $900 000 on 1 July and patent purchased of $300 000 on 1 October.Andre Pty Ltd considers both costs to represent assets each with a useful life of 10 years.Andre uses straight-line amortisation (depreciation for intangible assets).The costs were incurred evenly over the year.How much expense would be reported in Andre's profit or loss statement for this calendar year?

Question

Quizplus · Accepted Answer

First, we need to calculate the share of costs incurred by the WJV that is attributable to Andre Pty Ltd:
$900,000 (R&D costs) + $300,000 (patent purchase) = $1,200,000 (total costs incurred by WJV)
$1,200,000 x 33.3% (Andre Pty Ltd's share) = $400,000 (total costs attributable to Andre Pty Ltd)
Since the costs were incurred evenly over the year, we can calculate the annual expense as follows:
$400,000 / 10 years = $40,000 per year
Finally, since Andre uses straight-line amortisation, the expense for the current year would be:
$40,000 / 2 (since the costs were incurred evenly over half a year) = $20,000 for R&D costs
$40,000 / 4 (since the patent was purchased on 1 October, three months before year-end) = $10,000 for patent purchased
$20,000 + $10,000 = $30,000 (total expense for the year)
Since Andre Pty Ltd has a 33.3% share in the WJV, the expense reported in their profit or loss statement for this calendar year would be:
$30,000 x 33.3% = $22,500. Therefore, the correct answer is C) $22,500.

Andre Pty Ltd Has a 33