Lesson 10 Flashcards
Research and Development (R&D) costs
costs associated with research and development activities
Companies must expense all research and development cost when incurred. True or False?
True
Research Activities
planned search of critical investigation aimed at discovery of new knowledge.
Development activities
translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use.
What are the 5 costs associated with R&D activities?
- Materials, equipment, and facilities
- Personnel
- Purchased intangibles
- Contract Services
- Indirect costs
What are the costs that are similar to R&D costs?
- Start up costs for a new operation
- Initial operatin losses
- Advertising costs
- Computer software costs
Start-up costs
are incurred for one-time activities to start a new operation. Expense as incurred.
How should a company record initial operating losses?
Operating losses during the early years should not be capitalized. The accounting and reporting standards should be no different for an enterprise trying to establish a new business than they are for the enterprises.
How should a company record advertising costs?
Expensed as incurred, unless is it a tangible asset (billboard or blimps) that have future uses.
Which principle best describes the current method of accounting for R&D costs?
Immediate recognition as an expense
due to difficulties of associating costs with particular projects and determining the life of such activities R&D costs are expensed as incurred.
Which research and development costs may be capitalized?
Costs for assets with alternative future use
If a company constructs a laboratory building to be used as a research and development facility, what would the cost of the laboratory building be matched against earnings as?
Depreciation expensed as part of R&D costs
A building has an alternative future use, either in other R&D projects or other general use. The building is capitalized and deprecated over the useful life of the asset. This depreciation expense is included in the R&D costs of the activity.
