FINANCIAL ACCOUNTING

Accounting Assignment

Accounting Assignment 3

Solution 1

The principals involving in accounting for research & development are as follows:

The cost of research is recorded as an expense as and when it is incurred.

The cost/expense related to development of the product is also recorded so that development costs of totally fresh products is taken into balance sheet and amortized over its useful life.

Useful life of a product is defined taking into consideration the aging of technology and the product life cycle in a certain industry.

Once the product is launched, Amortization is initiated only then.

The small up-gradation and maintenance of existing products are recorded as an expense as they take place.

Unfinished projects, which are still in the phase of development, are impairment tested on the year end.

Date

 

Particulars

 

 

Dr.

 

Cr.

 

 

 

 

 

(in '000 €)

 

 

30-Sep-X1

Research Expense

200

 

 

Luca Project

200

 

To record the research cost incurred to date

 

 

 

 

30-Sep-X1

Development Expense

300

 

 

Luca Project

300

 

To record the product development costs

 

 

 

 

30-Sep-X1

Fixed Assets

2500

 

 

Cash

2500

 

To record the purchase of fixed assets bought for the project

 

 

30-Sep-X1

Depreciation Expense

300

 

 

Allowance for Depreciation

300

 

To record the depreciation expense of fixed assets for the year

 

 

30-Sep-X2

Depreciation Expense

300

 

 

Allowance for Depreciation

300

 

To record the depreciation expense of fixed assets for the year

 

 

30-Sep-X3

Depreciation Expense

300

 

 

Allowance for Depreciation

300

 

To record the depreciation expense of fixed assets for the year

 

 

30-Sep-X4

Depreciation Expense

300

 

 

Allowance for Depreciation

300

 

To record the depreciation expense of fixed assets for the year

 

 

30-Sep-X5

Depreciation Expense

300

 

 

Allowance for Depreciation

300

 

To record the depreciation expense of fixed assets for the year

 

 

30-Sep-X6

Depreciation Expense

300

 

 

Allowance for Depreciation

300

 

To record the depreciation expense of fixed assets for the year

 

 

30-Sep-X7

Depreciation Expense

300

 

 

Allowance for Depreciation

300

 

To record the depreciation expense of fixed assets for the year

 

 

30-Sep-X7

Accumulated Depreciation

2100

 

 

Cash

400

 

 

Fixed Assets

2500

 

To record the disposal of the fixed Assets

 

 

Research & Development Disclosure in Company's Annual Accounts

The following data must be disclosed in company's annual accounts at the end of the Financial Year;

Total research and development expenditure must be disclosed, unless the irrelevant in the related industry

The details of research and development expenditure should be provided. The cost should be distributed and disclosed under applied/pure research and product/process development.

"In-house" R&D should be disaggregated from that undertaken or paid by third parties.

The in-house total should be allocated to various organizational divisions and disclosed.

Any cost designated for equipments, building and specialists related to Research and Development should be disclosed.

Any key research and development projects that have taken place in the year must be disclosed.

The total budgeted cost for R&D in the current year and in the next two to three years must be disclosed. The company's overall ...