Question

Research and Development Costs

In 2016, Lalli Corporation incurred R&D costs as follows:

Materials used from inventory	$100,000
Personnel in R&D lab	100,000
Allocation of the cost of utilities and maintenance costs of the R&D facility	50,000
	$250,000

These costs relate to a product that will be marketed in 2017. The company estimates that these costs will be recouped by December 31, 2017.

Required:

1. What is the amount of R&D costs expensed in 2016?

$ ---------------------

2. In 2016, Lalli Corporation incurred R&D costs related to a product that will be marketed in 2017. The company estimates that these costs will be recouped by December 31, 2017. Included in these costs is $100,000 of material that has alternative future uses but was not used by the end of 2016. At the end of 2016 the cost for the material should be: ?-------------------------

Answer 1

Part 1

Lalli Corporation incurred following cost in 2016:

Material used from Inventory	$100,000
Personnel in R&D Lab	$100,000
Allocation of the cost of utilities and maintenance costs of R&D facility	$50,000
Total R&D costs	$250,000

the amount of R&D costs expensed in 2016 is $250,000

Part 2

At the end of 2016, the cost for the material should be: 0

Research and development assets acquired in an asset acquisition are recognized only if the assets have a future alternative use, otherwise the assets are expensed at the acquisition date.