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In: Accounting

On January 1, 20X2, Biotech Research Entity (BRE) made breakthrough in its genetic research project. One...

On January 1, 20X2, Biotech Research Entity (BRE) made breakthrough in its genetic research project. One of the results is an idea to create a genetic decoding software package. After six months of testing, BRE establishes technical feasibility on July 1, 20X2. Are rolled out the prototype of the software on January 1, 20X3. By March 1, 20X3, BRE had developed a business plan showing all the resources needed to complete development, its ability to secure those resources and a ready market for the software. The project was ready for launch by January 1, 20X4. During the month of December 20X3, BRE launched a marketing campaign to publicize the new software package. The following table shows the time line of expenditures made on the project. Determine which costs can be capitalized as development costs.

Expenditure date of expenditure amount
Internal R&D Expenditure January - December 20X1 $1,000,000
Internal R&D Expenditure January - June 20X2

500,000

Internal R&D Expenditure July 20X2 - February 20X3 2,000,000
Internal R&D Expenditure March - December 20X3 2,500,000
Marketing Costs December 20X3 750,000

Solutions

Expert Solution

Expenditure Date of Exp. Amount Answer
Internal R&D expenditure January - December 20X1 $1,000,000 Such amount of expenditure shall not be capitalized as development cost because such amount has been incurred prior to breakthrough in genetic research project.
Internal R&D expenditure January - June 20X2 $500,000 Such amount of expenditure would also not be capitalized because such expenses has been made prior to date of establishment of technical feasibility.
Internal R&D expenditure July 20X2 - February 20X3 $2,000.000 Such amount can be capitalized as development costs because such amount has been incurred after the date of establishment of technical feasibility and before establishment of project.
Internal R&D expenditure March - December 20X3 $2,5000,000 Such amount can also be capitalized as development costs because the period in which such amount has been incurred falls in the project development period.
Marketing Costs December 20X3 $750,000 Such amount has been incurred for marketing/advertising before the launching of project. Since such amount has been incurred before the launch, therefore such amount can also be capitalized as development costs.

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