In 2020, Peterson Corporation incurred research costs as follows: Materials and supplies $60,000 Personnel 65,000 Indirect...

In 2020, Peterson Corporation incurred research costs as follows:

Materials and supplies		$60,000
Personnel		65,000
Indirect costs—allocated		80,000
		$205,000

These costs relate to a product that Peterson expects to market in 2021. It is estimated that these costs will be recouped by December 31, 2023. How much of these costs could be capitalized in 2020?

$205,000

$125,000

$80,000

$0

Expert Solution

Answer:) $205000

In case the Research and Development activity related to the improvement of an existing process or product continues for more than one accounting period, the cost of the same shall be accumulated and amortised over the estimated period of use of the improved process or estimated period over which the improved product will be produced by the entity after the commencement of commercial production, as the case may be, if the improved process or product is distinctly different from the existing process or product and the product is marketed as a new product. The amount allocated to a particular period shall be included in the cost of production of that period. If the expenditure is only to improve the quality of the existing product or minor modifications in attributes, the principle shall not be applied.

Materials and supplies		$60,000
Personnel		65,000
Indirect costs—allocated		80,000

These all three cost will form part of Research and development cost. This R&D is done for new product creation. So as per above statement of CAS-18, The whole amount of $205000 will be alloted in the year2020 in which it is incurred.

ekkarill92 answered 2 years ago

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