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: January, research salaries $50 000; February, research materials $30 000; March, re-development of the extrusion plant $400 000; 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

Quizplus · Accepted Answer

The outlays related to the research and development of the more efficient extrusion system for plastic pipes are considered development costs and should be capitalized rather than expensed. Therefore, only the re-development of the extrusion plant and the final adjustments to the extrusion plant should be expensed. The sum of these two amounts is $425,000 ($400,000 + $25,000), which is the amount to be expensed by the company at the end of the financial year.

Parsons Limited Was Involved in a Highly Successful Plastics Manufacturing