Question

Diaz Company incurred the following costs during the year 2020.

1.	Salaries expense related to design for a trademark with an indefinite estimated life	$12,000
2.	Materials used for research and development projects for the current year	20,000
3.	Fees paid to external consultants related to research and development projects	60,000
4.	Trouble-shooting in connection with breakdowns during production	36,000
5.	Design of tooling involving new technology	18,000
6.	Cost of equipment (purchased January 2019) that will have alternative uses over 6 years	160,000
7.	Salaries expense related to updates to an existing product	80,000
8.	Allocation of rent expense for a facility partially used for research and development activities	30,000
9.	Routine testing of product during commercial production	56,000

Determine the amount of research and development costs that would be disclosed in the financial statements of Diaz company for the year 2020.

Note: Round your answer to the nearest whole dollar.

Answer 1

Remote of research and development that would be disclosed in financial statements of Diaz company for the year 2020:-

Particulars	Amount
Materials used for research and development projects for current year	20000
Fee paid to external consultants relating to research and development projects	60000
Design of tooling new technology	18000
allocation of rent expenses which is partially used for research and development	30000
Totaltotal cost of research and development should be disclosed in financial statements at the end of 2020	128000

Reasonsreasons for not including other cost into research and development cost for the current year :-

1. Relating to design of a trademark which has a definite period of life :- this cost is capitalised to the intellectual property of The trademark this cannot be treated as research and development expense.

2. Troubleshooting in connection with breakdowns during the production :- production will get started after the asset has recognised in the books of accounts. once an asset is recognised in books of accounts all the expenses related to that asset will be treated as maintenance expense or if that explains increase the life of the asset it will be capitalised. But in both cases we cannot treat it as research and development cost.

3. Cost of equipment that will have alternative use for 6 years :- this is a purchase of an asset which has 6 years of life. Depreciation charger to this asset during this research and development can be considered research and development cost but entire cost cannot be included development cost.

4. Expense related to tu updates of existing product :- cost incurred to all all existing products will be treated as maintenance for the asset or any intellectual property. But cannot be considered as research and development cost.

5. Routine testing during commercial production :- an asset starts commercial production after completion of enter research and development phase. All the expenses incurred to the asset after commencement of commercial production can be treated as maintenance cost are testing cost. But not be considered as research and development cost.

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