act 480 ct 5
Assignment Choice #1: Research and Development at Thomas Company
The Thomas Company is in the process of developing a revolutionary new product. A new division of the company was formed to develop, manufacture, and market this product. As of the end of the year December 31, 2010, the product has not been manufactured for resale; however, the prototype unit was built and is in operation. Throughout 2010, the division incurred certain costs including design and engineering studies, prototype manufacturing costs, administration expenses (including salaries of administrative personnel), and market research costs. In addition, $500,000 in equipment (estimated useful life of 10 years) was purchased for use in developing and manufacturing the preproduction prototype and will be used to manufacture the product. Approximately $200,000 of this equipment was built specifically for the design and development of the product; the remaining $300,000 of equipment will be used to manufacture a product once it is in commercial production.
Required: In the U.S. (SFAS No. 2), development costs are expensed but under the IFRS (IAS 38), many development costs are capitalized. Judge and support which treatment adheres best to the matching principle, basic to the conceptual frameworks of both U.S. GAAP and IFRS.
Your well-written paper must be 2-3 pages, in addition to title and reference pages. The paper should be formatted according to the CSU-Global Guide to Writing and APA Requirements(Links to an external site.). Cite at least two peer-reviewed sources, in addition to the required reading for the module.
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Research and Development Costs at Thomas Company
The case relates to Thomas Company which is the process of developing a new and revolutionary product in the market. When a new product is being developed, there are certain research and development costs that are accumulated by the company before the product can be launched. Some of the costs that were incurred include prototype manufacturing costs, administration expenses, design and engineering studies, and market research costs. Additionally an equipment costing $500,000 was also purchased. There are two major treatments of development costs that are used in accounting in the United States. The first is expensing the costs whereas the second one is through capitalizing the costs. The first treatment is contained in the SFAB statement 2.
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