Parsons Limited was involved in a highly successful plastics manufacturing business. It commenced a project to design a more efficient extrusion system for its plastic pipes. The following outlays occurred:
$\bullet$January: Research salaries £50 000
$\bullet$February: Research materials £30 000
$\bullet$March: Re-development of the extrusion plant £400 000
$\bullet$April: Final adjustments to the extrusion plant £25 000.
The amount to be expensed by this company at the end of the financial year, 30 June, is:
A) £30 000;
B) £50 000;
C) £80 000;
D) £480 000.

Question

Parsons Limited was involved in a highly successful plastics manufacturing business. It commenced a project to design a more efficient extrusion system for its plastic pipes. The following outlays occurred: 
$\bullet$January: Research salaries £50 000
$\bullet$February: Research materials £30 000
$\bullet$March: Re-development of the extrusion plant £400 000
$\bullet$April: Final adjustments to the extrusion plant £25 000.
The amount to be expensed by this company at the end of the financial year, 30 June, is:
A) £30 000;
B) £50 000;
C) £80 000;
D) £480 000.

Quizplus · Accepted Answer

The expenses incurred in January and February for research salaries and materials respectively were incurred in the research and development phase of the project, which is considered as a preliminary expense and cannot be capitalized. 
The expenses incurred in March and April for the re-development and final adjustments to the extrusion plant can be considered as part of the project cost and can be capitalized. 
Therefore, the amount to be expensed at the end of the financial year is £80,000 (£400,000 + £25,000 - £345,000).

Parsons Limited Was Involved in a Highly Successful Plastics Manufacturing ∙\bullet∙

Parsons Limited Was Involved in a Highly Successful Plastics Manufacturing $\bullet$