Renouf 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 during the year ended 30 June 2014: research salaries $50 000; research materials $30 000; re-development of the extrusion plant $400 000; 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 2014,is:

Question

Quizplus · Accepted Answer

The research salaries and materials are research and development costs and are expensed immediately. The re-development and final adjustments to the extrusion plant should be capitalized as they are directly related to the creation of a more efficient extrusion system. Therefore, the total amount to be expensed is $30,000 (research salaries) + $30,000 (research materials) = $60,000 and the total amount to be capitalized is $400,000 (re-development of the extrusion plant) + $25,000 (final adjustments to the extrusion plant) = $425,000. The question is asking for the amount to be expensed, so we subtract the amount to be capitalized from the total outlays, giving us $60,000 + $425,000 = $485,000 - $425,000 = $80,000 to be expensed. Therefore, the correct answer is choice C.

Renouf Limited Was Involved in a Highly Successful Plastics Manufacturing