Question

Realizing that bacon toothpaste probably wasn’t the best invention, Mr. Bacon's business (Bacon Co.) developed a new product – bacon-scented sunscreen. Bacon Co. spent 6 months (January 2019 – Sept. 2019) and $100,000 developing the sunscreen. The product launched October 1, 2019, and initially, it was a huge success. Bacon-scented sunscreen generated over $600,000 in sales in 2019. Sales tapered off quickly, and the sunscreen only generated sales of $10,000 in 2020. It is anticipated that there will be no bacon-scented sunscreen sales after 2020. What amount of R&E expenditures can Bacon Co. deduct in 2019 if Bacon Co. prefers to accelerate deductions as much as possible?

10000 is not the answer

Answer 1

As per the US GAAP and other Accounting standards, the research and development cost needs to be amortized in the current year itself as the benefits from it is not certain in future.. However, if companies are of in the opinion that the benefits of such research and development cost will occur in future they may capitalize the same and amortize in the proportion of benefit accruing to them.

In the captioned question most of the benefit is accruing in year 2019 ($600000) and benefit in 2020 ($10000) is not substantial, therefore to match the revenue with the cost incurred to earn that revenue the cost of research and development should be recognized fully i.e $100000 in 2019 itself.