25. The following costs are incurred during the research and development phases
ID: 2559608 • Letter: 2
Question
25. The following costs are incurred during the research and development phases of a laser bone scanner Laboratory research aimed at discovery of new knowledge Search for application of new research findings Salaries of research staff designing new laser bone scanner Material, labor and overhead costs of prototype laser scanner Costs of testing prototype and design modifications Engineering costs incurred to advance the laser scanner to full production stage (technological feasibility reached) $800,000 400,000 1,200,000 850,000 450,000 700,000 Identify which of these are development phase items and will be immediately expensed under GAAP and IFRS. GAAP IFRS a. $1,200,000 $1,200,000 b. $2,400,000 $1,400,000 c. $2,400,000 $2,500,000 d. $3,200,000 $2,500,000Explanation / Answer
GAAP vs IFRS : R & D Cost
Under US GAAP, R&D costs within the scope of ASC 730 (Research & Development) are expensed as incurred.
Under IFRS, IAS (Intangible Assets), research costs are expensed, like US GAAP. However, unlike US GAAP, IFRS has broad-based guidance that requires companies to capitalize development expenditures, including internal costs, when certain criteria are met.
Based on these criteria, internally developed intangible assets are generally capitalized and amortized under IFRS and expensed under US GAAP.
Answer
On the basis of above analysis, Development Phase Items under GAAP and IFRS are as follows:
As per GAAP
As per IFRS
Salaries of Researcg Staffdesigning new laser bone scanner
$ 1,200,000
Salaries of Researcg Staffdesigning new laser bone scanner
$ 1,200,000
Material, labour and overhead costs of prototype laser scanner
$ 850,000
Material, labour and overhead costs of prototype laser scanner
$ 850,000
Cost of Testing prototype and design modifications
$ 450,000
Cost of Testing prototype and design modifications
$ 450,000
Enginnering Cost incurred to advance the laser scanner to full production stage (technological feasibility reached)
$ 700,000
This expense will be capitalised because technological feasibility has been completed, therefore the product is ready to use or sale.
Total
$ 3,200,000
$ 2,500,000
Hence, the Option ‘D’ is correct.
As per GAAP
As per IFRS
Salaries of Researcg Staffdesigning new laser bone scanner
$ 1,200,000
Salaries of Researcg Staffdesigning new laser bone scanner
$ 1,200,000
Material, labour and overhead costs of prototype laser scanner
$ 850,000
Material, labour and overhead costs of prototype laser scanner
$ 850,000
Cost of Testing prototype and design modifications
$ 450,000
Cost of Testing prototype and design modifications
$ 450,000
Enginnering Cost incurred to advance the laser scanner to full production stage (technological feasibility reached)
$ 700,000
This expense will be capitalised because technological feasibility has been completed, therefore the product is ready to use or sale.
Total
$ 3,200,000
$ 2,500,000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.