Question

Oakville Corp. incurred the following costs during 2020 in connection with its research and development phase activities:

Cost of equipment acquired for use in research and development projects over the next 5 years (straight-line depreciation used)		$232,000
Materials consumed in research projects		64,900
Materials consumed in the development of a product committed for manufacturing in the first quarter 2021		30,800
Consulting fees paid in the last quarter of 2020 to outsiders for research and development projects, including $4,500 for advice related to the $30,800 of materials used above		94,000
Personnel costs of persons involved in research and development projects		109,600
Indirect costs reasonably allocated to research and development projects		25,700
General borrowing costs on the company’s line of credit		13,800
Training costs for a new customer service software program		20,700

(a)

Calculate the amount to be reported as research and development expense by Oakville on its income statement for 2020. Assume the equipment is purchased at the beginning of the year. Assume the company follows IFRS for financial reporting purposes.

Amount to be reported as research and development expense

$enter a dollar amount to be reported as research and development expense

Answer 1

a.

Depreciation of equipment acquired
for use in research and development
projects over the next 5 years ($232,000 ¸ 5)	$ 46,400
Materials consumed in research projects	64,900
Consulting fees paid to outsiders for research and
development projects ($94,000 - $4,500)	89,500
Personnel costs of persons involved in research and
development projects	109,600
Indirect costs reasonably allocable to research and
development projects	25,700
Total to be expensed in 2020 for Research and
Development	$336,100

Note that the cost of the materials consumed in the development of a product committed for manufacturing in the first quarter of 2021 and the consulting fees related to the materials are likely costs incurred after the six development phase criteria have been met. As such, they would be charged to an intangible asset account such as Product Development Costs that would be amortized over the benefiting periods.