Cape town Ltd has been involved in a project to develop an engine that runs on extracts from sugarcane. In commenced the project in February 2004. Between the commencement date and reporting date (30 June 2004) there was no indication that project would be commercially feasible but company already incurred Taka 254,000. After spending a further Taka 200,000 during July and August, the company had build a prototype that appeared to be successful. The prototype was demonstrated to a number of engineering companies during September and a number of these companies expressed interest in the further development of the Engine. Convinced that it now had a product that would be able to sell. Company spent a further 70,000 during October for the problems that engineering firm pointed out. On November 1, company applied for a patent incurring legal and administrative cost of taka 45,000. The patent had an expected useful life of 5 years. Company uses straight line method for amortization of intangibles
During December, Company spent an additional Taka 85,000 on engineering and consultancy cost to develop the project such that the engine was at manufacturing stage. These resulted in changes in the overall design of the engine and costs of Taka 5000 were incurred to add minor changes to the patent authority.
On 1 January 2005 Company invited tender for the manufacturing of the engine for commercial sale.
Prepare the Financial statements extracts regarding the project for the year 2004 and 2005 in accordance with the requirements of IAS 38.Also explain the rationale.
