Q : Present any cashflows 1. Costa announced on 25/02/16 that it will pay an int
ID: 457586 • Letter: Q
Question
Q : Present any cashflows
1. Costa announced on 25/02/16 that it will pay an interim dividend of 3 cents per share.The number of shares “at reporting date” is stated in Note 9 to the half-year accounts.
2.Costa owns a 50-hectare parcel of land on which they plan to construct the new
glasshouse. This land is currently leased to a third party for $1.3m each year and the
leaseholder is prepared to continue the lease indefinitely. The new tomato glasshouse has
been developed by Costa’s Research and Commercialisation centre. Over the last four years
this centre has spent $5 million researching and designing the new tomato glasshouse. As
section A.8 of the IPO states, “Expenditure on research activity is recognised as an expense
when incurred”. There is some debate among management about whether the research
expenditure should be treated as an opportunity cost in the analysis to ensure that this money
earns an appropriate return or simply classified as an expense.
Explanation / Answer
Costa announced on 25/02/16 that it will pay an interim dividend of 3 cents per share.The number of shares “at reporting date” is stated in Note 9 to the half-year accounts.
It does not result in cash flow at the current period of time but it is just creating a liability. Once payout is released, then it will result in cash flow.
The research activity should be expensed up to the research stage. Once the feasibility of the project is arrived at then the development charges will be capitalised.
Hence the $ 5 million needs to be expensed and not to be capitalised since it is in research and in design stage.
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