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Research and Development Arrangements, ASC 730

Research and Development Arrangements

SFAS 68, October 1982
“Research and Development Arrangements”

Research and development arrangements
Research and development is funded by other parties

Forms of research and development arrangements
1. Liability to repay to other parties
2. Obligation to perform contractual services
3. Loan to other parties
4. Issuance of warrants

Liability to repay to other parties
1. If repayment is required regardless of the result of R&D activities
–> recognize it as a liability

2. R&D costs are expensed as incurred

Obligation to perform contractual services
1. If repayment of loan depends on the result of R&D activities
–> this obligation is a contract to perform R&D for others

2. Apply accounting for contract revenue and costs

Loan to other parties
If repayment of loan depends on the result of R&D activities
–> the loan is charged to R&D expenses

Issuance of warrants
If warrants are issued by R&D arrangement
–> the fair value of the instrument is
–> reported as paid-in capital

 

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Research and Development, ASC 730

Research and Development Costs

SFAS 2, October 1974
“Accounting for Research and Development Costs”

General rule for research and development costs
Research and development costs are
–> charged to expense when incurred
–> because future economic benefits are uncertain

Research and development (R&D) costs
1. tangible assets
2. intangible assets
3. personnel costs
4. indirect costs
5. contract costs
6. computer software costs

Tangible assets acquired for R&D activities
1. If the assets have alternative future uses
–> capitalized as an asset
–> cost of consumption or depreciation is charged to expense

2. If the assets do not have alternative future uses
–> expensed at the time of acquisition

Intangible assets acquired for R&D activities
1. If the assets have alternative future uses
–> capitalized as an asset
–> amortization is charged to expense

2. If the assets do not have alternative future uses
–> expensed at the time of acquisition

Personnel costs, indirect costs, contract costs
–> expensed when incurred

Computer software costs
1. Software developed internally for R&D activities
–> all costs are expensed when incurred
–> alternative future uses are not considered
–> development phases are not considered

2. Software purchased for R&D activities
(1) if the software has alternative future uses
–> capitalize as an intangible asset
–> amortization is charged to expense

(2) if the software does not have alternative future uses
–> expensed when incurred

 

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Research and Development Costs


Research and Development (R&D) costs are recognized as an expense during the period. Being recognized as an expense means that such costs are not capitalized as an intangible asset.

Costs of computer software
(1) Costs incurred until the technological feasibility is established –> research and development costs –> recognized as an expense
(2) Software production costs incurred after the technological feasibility is established
–>┬ácapitalized as an intangible asset

 

 

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