Answer:
The entries during 2016 are as follows:
- Intangible asset (R&D) $156960
Cash $156960
- Patent $32400
Cash $32400
- Patent amortization expense $3240
Patent $3240
Explanation:
According to IAS 38 (Intangible assets), research and development costs should only be capitalized (recorded as intangible assets) when all of the following criteria is met.
<em>1- The entity intends to complete the development of research findings.</em>
<em>2- The costs of research and development can be reliably measured.</em>
<em>3- There are adequate resources available for the development and development has technical feasibility.</em>
<em>4- It's probable that future economic benefits will flow to the entity.</em>
Given the data in the question, all of the requirements are met under IAS 38 and hence the research and development costs are capitalized (recorded as an intangible asset). Secondly, the patent is also an intangible non-current asset.
The entries during 2016 are as follows:
- Intangible asset (R&D) $156960
Cash $156960
- Patent $32400
Cash $32400
- Patent amortization expense $3240
Patent $3240
Patent amortization is calculated by dividing the cost of patent upon it's useful life (i.e $32400÷10).
[ where a is a constant]