Accounting Treatment of Research and Development Costs
Evan Frye
Isaac Deverick
Accounting Theory (ACNT 1391-6425)
Group Project Paper
Accounting Treatment of Research and Development Costs
Definition of Research and Development
Research and Development activities are the cornerstones to corporations attempting to develop or improve their products or manufacturing methods or facilities. Companies normally undertake these activities with the expectation that the result will generate significant income. This paper will attempt to expound on the accounting treatment of Research and Development costs and problems regarding classification of research and development costs and differences between accounting treatment of research and development as per United States standards and International Standards.
Before we begin to expound the accounting treatment of Research and Development, it is necessary to understand and distinguish Research and Development from other costs.
Financial Accounting Standards Board (FASB) provided the following definitions:
Research: “research is planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service or new process or technique or in bringing about a significant improvement to an existing product or process”
Development: “Development is the translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use. It includes the conceptual formulation, design and testing of product alternatives, construction of prototypes, and operation of pilot plants. It does not include routine or periodic alterations to existing products, production lines, manufacturing processes, and other ongoing operations even though these alterations may represent improvements and it does not include market
Isaac Deverick
Accounting Theory (ACNT 1391-6425)
Group Project Paper
Accounting Treatment of Research and Development Costs
Definition of Research and Development
Research and Development activities are the cornerstones to corporations attempting to develop or improve their products or manufacturing methods or facilities. Companies normally undertake these activities with the expectation that the result will generate significant income. This paper will attempt to expound on the accounting treatment of Research and Development costs and problems regarding classification of research and development costs and differences between accounting treatment of research and development as per United States standards and International Standards.
Before we begin to expound the accounting treatment of Research and Development, it is necessary to understand and distinguish Research and Development from other costs.
Financial Accounting Standards Board (FASB) provided the following definitions:
Research: “research is planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service or new process or technique or in bringing about a significant improvement to an existing product or process”
Development: “Development is the translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use. It includes the conceptual formulation, design and testing of product alternatives, construction of prototypes, and operation of pilot plants. It does not include routine or periodic alterations to existing products, production lines, manufacturing processes, and other ongoing operations even though these alterations may represent improvements and it does not include market
Bibliography: Richard G. Schroeder, Myrtle W. Clark, Jack M. Cathey, “Financial Accounting Theory and Analysis: Text and Cases”. (John Wiley & Sons Inc. ,2009) Financial Accounting Standards Board, Statement of Financial Accounting Standards No