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Equipment purchased for current and future projects $100,000
Equipment purchased for current projects only 200,000
Research and development salaries for current projects 400,000
Legal fees to obtain patent 50,000
Material and labor costs for prototype product 600,000
The equipment has a five-year useful life and is depreciated using the straight-line method. What amount
should Ansar recognize as research and development expense at year end?
a. $450,000
b. $1,000,000
c. $1,220,000
d. $1,350,000
twelve lakh and twenty thosand
All items mentioned belong those R&D except legal fees but we have to note that the R&D has benifit of the equipment only one year and the depreciation expense for this year is $20,000 (100,000/5 years )so the R&D expense =20,000 +200,000 +400,000 +600,000 =1,220,000 .
If the equipment purchased for those R&D only it will be expense but if it will be used for future it will be treated as fixed asset .
Legal fees capitalized to the cost of patent and amortized within its useful life .Answer C is the right option .
The correct answer is : C - $1,220,000
Equipment purchased for current and future projects Depreciation =100,000 /5 =20,000
Legal fees to obtain patent :
to be amortized to overhead = Cost of Goods Manufacturing.
R& D Expense =20,000 +200,000 +400,000 +600,000
Equipment purchased for current and future projects $100,000 and it has life of5 years ........for end of the period the amount should be considered.
Now which amount100,000/5 = $20,000 should be considered.
Amount should be $10,00,000 because equipment purchase would be an asset to the company whereas Material cost for prototype & Salaries for the same are purely for R & D. Patent fees cannot be w/off it will be added to the asset which would be generated after the R & D process
Ansar Should recognize $1,000,000/- as a research & development expense
