| Paragraph
Number |
Issued:
October, 1974
|
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| 1 | Establishes
standards
of financial accounting and reporting for research and development
costs.
Objectives: |
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| 1) reduce the number of alternative accounting and reporting practices presently followed. | ||||
| 2) Provide useful financial information about research and development costs. | ||||
| This statement specifies: | ||||
| a. | activities identified s research and development for financial accounting and reporting purposes | |||
| b. | elements of cost that shall be identified with research and development activities | |||
| c. | the accounting for research and development costs | |||
| d. | financial statement disclosures related to research and development costs | |||
| 2 | Accounting for the costs of research and development activities conducted for others under under a a contractual arrangement is a part of accounting for contracts in general and is beyond the scope of this Statement. | |||
| 8 | Research and Development is defined as follows: | |||
| a. | Research--planned search or critical investigation aimed at discovery of new knowledge with the hope that such know will be useful in developing a new product or service... | |||
| b. | Development--translation of research findings into a plan for for a new product or process | |||
| 9 | Examples of activities typically included as research and development | |||
| a. | Laboratory research aimed at discovery of new knowledge | |||
| b. | Searching for applications of new research findings | |||
| c. | Conceptual formulation and design of possible product alternatives | |||
| d. | Testing is search for or evaluation of product or process alternatives | |||
| e. | Modification of the formulation or design of a product or process. | |||
| f. | Design, construction, and testing of pre-production prototypes and models | |||
| g. | Design of tools, jigs, molds, and dies involving new technology. | |||
| h. | Design, construction, and operation of a pilot plant that is not of a scale economically reasonable to the enterprise for commercial production. | |||
| i. | Engineering activity required to advance the design of a product to the point that it meets specific functional and economic requirements and is ready for manufacture. | |||
| 10 | Examples of activities typically excluded from research and development | |||
| a. | Engineering follow-through in an early phase of commercial production. | |||
| b. | Quality control during commercial production including routine testing of products. | |||
| c. | Trouble shooting in connection with break-down during commercial production. | |||
| d. | Routine, on-going efforts to refine, enrich, or otherwise improve upon the qualities of an existing product. | |||
| e. | Adaptation of an existing capability to a particular requirement or customers need as part of a continuing commercial activity. | |||
| f. | Seasonal or other periodic design changes to existing products. | |||
| g. | Routine design of tools, jigs, molds, and dies. | |||
| h. | Activity . . . related to the construction, relocation, rearrangement, or start-up of facilities or equipment. . . . | |||
| i. | Legal work in connection with patent applications or litigation, and the sale or licensing of patents. | |||
| 11 | Elements of Cost to Be Identified with Research and Development Activities | |||
| a. | Materials, equipment, and
facilities.
The cost of materials and equipment or facilities that are acquired or
constructed for research and development activities and
that have alternative future uses shall
be capitalized as tangible assets when acquired or constructed.
The cost of such material consumed and the depreciation of such equipment or facilities used in research and development activities are research and development costs. However, The cost of materials and equipment or facilities that are acquired or constructed for a particular research and development project and have no alternative future uses and therefore no separate economic values are research and development costs at the item the cost are incurred. |
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| b. | Personnel. Wages and salaries of personnel engaged in research and development shall be included in research and development costs. | |||
| c. | Intangibles.
Purchased intangibles
used in research and development activities that have alternative
future
uses shall be capitalized. The amortization of those intangibles
is a research and development cost.
If the intangible has not alternative future uses, and therefore not separate economic values are research and development costs at the time incurred. |
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| d. | Contract services. The costs of services performed by others in connection with the research and development activities of an enterprise . . . shall be included in research and development costs. | |||
| e. | Indirect costs. Research and development cost shall include a reasonable allocation of indirect costs. | |||
| Accounting for Research and Development Costs | ||||
| 12 | All research and development costs . . . shall be charged to expense when incurred. | |||
| 13. | Disclosure shall be made in the financial statements of the total research and development cost charged to expense in each period for which an income statement is presented. | |||
| 15 | Effective Date and Transition | |||
| This Statement shall be effective for fiscal years beginning on or after January 1, 1975; earlier application is encouraged. | ||||