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Chapter 12: Q19Q. (page 637)

What is the nature of research and development costs?

Short Answer

Expert verified

The costs of conducting a deliberate search for new information and turning that knowledge into new goods or processes are known as research and development costs.

Step by step solution

01

Research and Development costs

Research & development expenditures are expended to create new goods or processes, improve existing ones, or learn new things.

02

Nature

R&D expenses cause a slew of issues:

(1) Determining the expenses of certain activities, initiatives, or accomplishments, and

(2) Calculating the quantity of future advantages and the length of time it will take to realize them. Costs associated with R&D can be characterized as follows:

Personnel, acquired intangibles, contract services, and indirect costs (a) Materials, equipment, and facilities, (b) Personnel, (c) Purchased intangibles, (d) Contract services, and (e) Indirect costs

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Most popular questions from this chapter

Question: Indicate whether the following items are capitalized or expensed in the current year.

  1. Purchase cost of a patent from a competitor.
  2. Research costs.
  3. Development costs (after achieving economic viability).
  4. Organizational costs.
  5. Costs incurred internally to create goodwill.

Use the information provided in IFRS12-8. Assume that the recoverable amount of the division is estimated to be \(750,000. Prepare Waters’ journal entry, if necessary, to record an impairment of the goodwill.

Waters Corporation purchased Johnson Company 3 years ago and at that time recorded goodwill of \)400,000. The Johnson Division’s net assets, including the goodwill, have a carrying amount of \(800,000. The recoverable amount of the division is estimated to be \)1,000,000. Prepare Waters’ journal entry, if necessary, to record impairment of the goodwill.

Research and development activities may include (a) personnel costs, (b) materials and equipment costs, and (c) indirect costs. What is the recommended accounting treatment for these three types of R&D costs?

Why does the accounting profession make a distinction between internally created intangibles and purchased intangibles?

Use the information provided in BE12-1. Assume that at January 1, 2019, the carrying amount of the patent on Taylor Swift’s books is \(43,200. In January, Taylor Swift spends \)24,000 successfully defending a patent suit. Taylor Swift still feels the patent will be useful until the end of 2026. Prepare the journal entries to record the $24,000 expenditure and 2019 amortization.
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