Question 3 - Part a

In this lesson

1. 0:00 Project Diagnose development costs overview
2. 1:02 Capitalisation rules under IAS 38 standard
3. 2:03 Directly attributable costs and administrative overheads
4. 3:31 Impairment assessment for development assets
5. 6:00 Bank loan renegotiation and substantial modification
6. 9:07 Testing for substantial modification using cash flows
7. 14:22 Conclusion on loan modification and finance cost
8. 16:55 Related party transaction with Gill Heath
9. 18:05 Disclosure requirements for related parties

About this lesson

The first section covers capitalising development costs under IAS 38. You'll learn that costs can only be recognised as an asset from the date all recognition criteria are met—not before. You'll see how to identify which costs qualify for capitalisation (directly attributable costs like employee salaries and equipment depreciation) and which must be expensed (general administrative overheads). The lesson also covers impairment testing for intangible assets under development, particularly when project circumstances change significantly. The second section examines bank loan renegotiations and substantial modifications. You'll work through a practical example calculating whether a change in loan terms meets the 10% threshold for substantial modification. Using present value calculations with the original effective interest rate, you'll determine how to account for the modification and when to adjust the carrying value versus simply updating the finance cost. The final section addresses related party transactions and disclosure requirements. You'll explore how to classify close family relationships, understand that materiality by nature overrides quantitative thresholds, and learn what information must be disclosed when related party transactions occur at arm's length.

Duration: 20m