Contracts

Question 1

An entity should capitalize costs incurred to fulfill a contract provided those costs meet all of the following criteria:

Answer 1

Costs relate directly to a contract or to an anticipated contract that the entity can specifically identify
Costs generate or enhance resources of the entity that will be used in satisfying or in continuing to satisfy performance obligations in the future
The costs are expected to be recovered

Question 2

The calculation of income recognized in the 3rd year of a 5 year construction contract where revenue is recognized over time includes the ratio of:

Answer 2

Total costs incurred to date to total estimated costs

Question 3

Research and development expenses:

Answer 3

Discovery of new product or service
Developing a new process or technique, bringing a significant improvement to an existing product, translating research findings or other knowledge into a plan or design for a new product or process

R&D includes materials, equipment, facilities with no alternative use, personnel, intangibles, contract services, and an allocation of indirect costs