Accounting Treatment of Research and Development Costs

Irrelevant Costs, Insurance (General Liability, Physical Damage, Workers Compensation, Health insurance), Security, Depreciation, Salaries Benefits, Bad Debt Expense, Permits, Rental Equipment, Payroll Taxes, Accounting Fees, Supplies, Computer Maintenance, Miscellaneous.

a. (i.) According to FASB Statement of Concepts No. 6, paragraph 25, assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. They represent probable future economic benefits controlled by the enterprise. According to FASB Statement of Concepts No 6, paragraph 80, expenses are outflows or other using up of assets or incurrences of liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major, or central, operations. Expenses are gross outflows

Refer to AASB138 (54), (2015, p. 13) research expense should be expensed when it occurred. Whereas development expense could be capitalised as an intangible asset when the entity demonstrates the ability to use or sell (AASB 138 57 c 2015, p. 13). As a technology-driven business, R&D is the core competence for MYX to differentiate its products and gain sustainable profits. Hence, adjustments should be made to transfer R&D expenses to an intangible asset.

Even though most of these expenses are not of big magnitude their value can add up and affect the company’s finances. Some of these items are accrued time for employees, bonuses, benefits, utilities, improvements and taxes. Some additional sources of working capital include; cash reserves, profits, equity loans, line of credit, and long term loans.

1. (TCO C) Redstone Company spent $190,000 developing a new process, $45,000 in legal fees to obtain a patent, and $91,000 to market the process that was patented. How should these costs be accounted for in the year they are incurred?

According to Rajasekaran and Lalitha (2010 ) the cost is an estimated amount given for an item or a global expense that the owner of the enterprise

Under-IFRS (IAS-38), important to distinguish research-costs from development-costs. Development costs capitalized as assets, research costs expensed. Carroway-cool-top is in research-stage, as products developed haven't been successful, so cost $975,000 should be record as expense instead of deferred-development-cost.

5. Inclusion of certain costs in property, plant and equipment that the firm should have expense in the period incurred: This overstates fixed assets, income tax payable, retained earnings, operating expenses. This understates income tax expense.

Property, Plant & Equipment (PPE) (AASB 116): “Property, plant and equipment are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item including borrowing costs that are related to the

An intangible asset is an identifiable, non-monetary asset that has no physical presence. IAS 38 states that an intangible asset should be recognized initially at cost if some criteria are met such as the following:

The purpose of this paper is to answer a few important questions: Why do companies allocate costs? How do companies allocate costs? And how this cost allocation can affect the decision making of the company. It is important for the companies to find the proper method to allocate the costs. Cost allocation is an important issue in many companies because many of the costs associated with designing, producing and distributing products and services are not easily identified with the products and services that are created. It would have been easier for companies to allocate cost if costs were directly traceable with the products and the cost allocation would have been minor issue for the company. The decision-making

18. Companies that expense R&D costs to the income statement rather than capitalize them on the balance sheet would have:

Employee benefits expenses arising in respect of wages and salaries, non‑monetary benefits, leave entitlements and other types of entitlements are charged against profits on a net basis in their respective categories.

One of the biggest debates in financial accounting is expensing advertisement and research and development activities as opposed to them being considered an asset. The idea was that they don’t meet the reliability criteria. The future benefits associated with research and development are very uncertain making it difficult to record the expenditures as an asset. At this point there is little research to support an intangible capital treatment of research & development and advertising. Currently research and development expenditures are not considered to be an investment. With all of those uncertainties, GAAP states that any research and development activities be a current period expense. Although these expenditures treatment is vastly acknowledged as an incorrect concept, the measurements surrounding the treatment of research and development as an investment were seemingly insurmountable to overcome. That ideology however can be challenged under the advancements within the IT and computer equipment industry since the early 90’s. It was identified as a main source of productivity growth which made it necessary to consider research and development as an investment. In this paper, we will discuss GAAP’s treatment of research and development expenditures and propose a different alternative. Throughout the paper we will define research and development, its activities and many of the guidelines, regulations, and Acts surrounding it.

Direct costs are costs directly related to producing the products and services of a project. On the other hand, indirect costs are costs not directly related to a project’s products or services, but are indirectly related to performing the project.