Accounting and Finance - Chief Financial Officer of Large Mart - source materials and accounting standards - Report Writing Assessment Answer

Accounting and Finance - Chief Financial Officer of Large Mart - source materials and accounting standards - Report Writing Assessment Answer

Task:

Part A: This part of the assignment is worth a total of twelve (12) marks (details are provided below). It requires you to provide a written response to the two questions listed below.
When answering the provided questions you must ensure that your answers address the questions, that your answers have an Australian accounting/financial reporting focus, that your answers are internally consistent, and that the individual components of your answers provide a well-rounded argument that is easy to follow.
The Chief Financial Officer (CFO) of Large Mart has been unable to find answers for two accounting problems. He has asked you to investigate the following questions and to write a report (including relevant references to source materials and accounting standards) that will provide him with a sufficient understanding of these issues to allow a well-supported decision to be made. To achieve this, the CFO seeks you to answer specific questions, but also to outline the development of your answers sufficiently to allow a reader to understand why you have developed your answers.

Question 1)  Since the beginning of the financial year, Large Mart has spent $100,000 to create a new computer program that is able to automatically summarise the content of a university lecture without any manual work being required by students. Large Mart decided to undertake this project because its programming department knew it had the technical knowledge to develop the program successfully, and UNE students had previously expressed strong interest to purchase such a program. This week, the program has been completed and it will go on sale next week. The Large Mart accounting department is unsure if the $100,000 that was spent on the creation of the program is regarded as a development or research cost. As a result, the accounting department is also unsure how to account for the monies spent on the creation of the program
Question 1a)     Provide a detailed discussion of the difference between development and research expenditures, and explain what criteria must be used to distinguish between development and research expenditures in the Australian financial accounting environment. 
Question 1b)     Determine if the creation of the program represents development or research expenditure, using a detailed evaluation of the criteria you have identified in question 1a, and  explain how the funds spent on the creation of the program should be accounted for (you do NOT need to provide any  journal entries!)

Question 2)  When the project commenced (at the beginning of the financial year), Large Mart intended to sell the program to UNE students directly through its Armidale store. However, on the day the new program goes on sale, Large Mart receives an offer from UNE to purchase 25,000 copies of the program (on CD) for $200,000 because UNE would like to supply a version of the program to each student free of charge. Large Mart accepts UNE’s offer and produces the 25,000 CDs at a production cost of $1 per CD (IMPORTANT NOTE: the cost of $1 per CD does NOT include any research or development expenditures for the program!). On the day the CDs are delivered to UNE, Large Mart receives the $200,000 payment for the CDs. However, the Large Mart accounting department is unsure how to calculate the Cost of Goods Sold for this sales transaction.
Question 2a)  Provide a detailed discussion of the accounting requirements that Large Mart must follow to calculate the Cost of Goods Sold for the sale of the 25,000 program CDs to UNE (IMPORTANT NOTE: you do NOT need to show the calculations for the Cost of Goods Sold!)
Question 2b) Explain how the Large Mart accounting department would have to record such a sale of all rights to the program to UNE, and provide a detailed discussion of any differences (if any exist) between this sale of all rights to the program to UNE and the sale of 25,000 individual copies of the program on CD to UNE. (IMPORTANT NOTE: you do NOT need to show any journal entries or calculations in your answer to this question)

Part B: This part of the assignment is worth a total of three (3) marks (details about the allocation of marks in part b are provided below).
The Research & Development Department of Large Mart is also working on the development of a “study pillow” that allows students to upload study material into their brain whilst sleeping. In order to complete this project, Large Mart has purchased the following items:

•  A car (which is used to transport students participating in a trial of the study pillow to the laboratory)
•  A notebook computer (which is used to record the feedback of students participating in the trial)

The car was purchased on credit on 11th May 201x. The list price of the car was $45,000, and the car dealer charged an additional amount of $1,000 to deliver the car to the Large Mart Research & Development Department. Large Mart received the car (as well as the invoice for the car) on 15th May. The invoice from the car dealer was paid on 1st June 201x.
Large Mart expects to use the car for a period of 5 years. At the end of its useful life, the car is expected to have a residual value of $3,000. The depreciation method used for the car is identical to the method that Large Mart is using for other cars (straight-line depreciation).

Assessment Criteria
HD  To receive a high distinction, students must provide detailed background on the question, provide very well-reasoned and easy to follow arguments that answer all details of the provided question well, and extensively support their answers with literature.

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