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Li Berhad (JLB) has built an offshore wind farm with the purpose of testing the efficiency of its prototype wind turbines.
Li Berhad (JLB) has built an offshore wind farm with the purpose of testing the efficiency of its prototype wind turbines. JLB has applied to the authority for approval for production of its new prototype but has only received permission to test the prototype wind turbine. The wind farm development will enable JLB to test the reliability of the new wind turbines which should assist in developing more efficient and cost effective offshore wind turbines but as yet, there has not been any commercial production of the prototype wind turbines as there is still some slight doubt over the durability of the wind turbine in extreme weather conditions. The renewable energy generated during the testing phase of the wind turbines is sold to the national regulator of electricity. There is sufficient resource to complete the wind farm project but the energy income has not been included in management's resource planning. The Board of Directors of JLB wishes to know how the expenditure on the wind farm and the income from the sale of energy should be treated in the financial statements.
Required:
As the accountant of Jet Li Berhad, advise the Board of Directors regarding the recognition of development costs and the income from the sale of energy in the financial statements in accordance to MFRS 138 Intangible Assets.
