Question

Hyland Company’s research and development (R&D) records contained the following information for 2020.

Materials used in R&D projects		$ 720,000
Equipment acquired that will have significant alternative future uses including future R&D projects.		3,600,000
Depreciation expense for 2020 on above equipment		900,000
Personnel costs involved in R&D projects		1,800,000
Consulting fees paid to outsiders for R&D projects		180,000
Indirect costs reasonably allocable to R&D projects		360,000
		$7,560,000

Required

Determine the amount of research and development costs debited to expense and reported on Hyland’s 2020 income statement.

Answer 1

	Calculation of R&D expense to be reported in income statement
	Particulars	Amount($)
	Material used	$720,000
	Depreciation on equipment(Note-1)	$900,000
	Personnel cost involved in R&D projects	$1,800,000
	Consulting fees paid to ousiders	$180,000
	Indirect costs reasonably allocable to R&D	$360,000
		$3,960,000
Note-1	If materials or fixed assets have been acquired that have alternative future uses, record them as assets. The materials should be charged to expense as consumed, while depreciation should be used to gradually reduce the carrying amount of the fixed assets. Conversely, if there are no alternative future uses, charge these costs to expense as incurred. Hence, equipment cost 3.6 million has been expensed completely. Only depreciation is expensed