Question

Real Madrid CF Corp. financial statements for the years ended December 31, included the following: 1

Year: 2016 | 2015 | 2014 | 2013 | 2012;
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Net sales: $14133 | 12677 | 10739 | 9864 | 8684;
R & D expense: $2776 | 2279 | 1805 | 1567 | 1340;
Pretax income: $4443 | 2594 | 2867 | 2528 | 2017;
Tax expense: $-1244 | -642 | -775 | -758 | -609;
Net income: $3199 | 1952 | 2092 | 1770 | 1408;
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Shareholders' equity: $8887 | 8810 | 7933 | 6954 | 5506;
Total assets: $20574 | 18302 | 14991 | 14251 | 12339;
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Real Madrid CF Corp. expensed all research and development expenditures immediately as incurred. Assume all research and development expenditures were spent on June 30 of each year.

What will be research and development expense in 2016 if Real Madrid CF Corp. capitalized all research and development expenditures and amortized it over 3 years?

A. 2288

B. 1884

C. 2086

D. 2776

E. 2279

Answer 1

If it is decided to amortize the Research and development expenditure over 3 years, without immediately expensing it, then the R&D spent in one year will be claimed as expense in the next three years equally.

Example : R&D expense spent in 2012 will be claimed as expense in 2013, 2014 and 2015 equally (1/3rd in each year)

So, in 2016 we will claim expense of 2013, 2014 and 2015 years R&D spent.

Total of 2013, 2014 & 2015 = 1,567 + 1,805 + 2,279

= 5,651

Expenditure to be claimed in 2016 = 5,651/3 = 1,883.67

So the answer is Option B - 1,884