Question

Clonal, Inc., a biotechnology company, developed and patented a diagnostic product called Trouver. Clonal purchased some research equipment to be used exclusively for Trouver and subsequent research projects. Clonal defeated a legal challenge to its Trouver patent, and began production and marketing operations for the project. Corporate headquarters' costs were allocated to Clonal's research division as a percentage of the division's salaries.

Required:

1. How should the equipment purchased for Trouver be reported in Clonal's income statements and statements of financial position?

2. a. Describe the accounting treatment of research and development costs.

b. What is the justification for the accounting treatment of research and development costs?

3. How should corporate headquarters' costs allocated to the research division be classified in Clonal's income statements? Why?

4. How should the legal expenses incurred in defending Trouver's patent be reported in Clonal's financial statements?

Answer 1

Answer :-

1. How should the equipment purchased for Trouver be reported in Clonal's income statements and statements of financial position?

The gear bought for Trouver ought to be accounted for as follows in Clonal's salary articulation and proclamation of money related position :-

1. Devaluation on gear ought to be charged to salary articulation as Research and Development cost on the grounds that the hardware will be utilized for other research ventures also.
2. The hardware ought to be accounted for as net of deterioration in proclamation of monetary position at the year end.

2. a. Describe the accounting treatment of research and development costs?

• As per coordinating idea, every one of the costs identified with perceived income are perceived in a similar bookkeeping period.

Precedent :

If the offer of $5,000 are perceived at that point as indicated by coordinating idea every one of the costs identified with this business Viz , buy cost , carriage inwards,etc. should also be perceived in indistinguishable bookkeeping period from well.

2.b. What is the justification for the accounting treatment of research and development costs?

Bookkeeping treatment for innovative work cost is as per the following:-

1. Every one of the costs brought about towards innovative work exhausted as innovative work cost in the period acquired .
2. Cost caused after the beginning of business generation is used or incorporated into the expense of the product.
3. This bookkeeping treatment isn't reliable with the coordinating idea since it is used in the period caused where as related income can't be perceived in that period.
4. This treatment is utilized because of FASB's prerequisite .Justification for this bookkeeping treatment is as per the following:
5. At the point when the innovative work venture is embraced , at first it is very dubious about the surety of the accomplishment of the undertaking into business generation and the organizations don't perceive that consumption in their books for quite a while of the task .
6. Due to this vulnerability after 1974,FASB has suggested this bookkeeping treatment for the cost brought about on innovative work ventures.

3. How should corporate headquarters' costs allocated to the research division be classified in Clonal's income statements? Why?

• Corporate headquarter's costs distributed to explore division ought to be characterized in Clonal's pay articulation as Research and improvement cost if these costs are straightforwardly and unmistakably identified with innovative work.

4. How should the legal expenses incurred in defending Trouver's patent be reported in Clonal's financial statements?

• Legitimate costs brought about in protecting Trouver's patent ought to be promoted as patent in light of the fact that these are comparative as buy cost of immaterial resource and amortized over the time frame.