Antartica Company started a research and development project on a new product on January 1, 2019. Total cost incurred before reaching technological feasibility amounted to P4,000,000 while development cost after reaching technological feasibility amounted to P5,000,000 before year-end. Prior to commercial production, the entity paid legal and registration fees amounting to P1,000,000 in filing for a patent on the new product on July 1, 2019. Early in January 2020, an additional amount of P2,000,000 was incurred to develop the project to full manufacturing stage. The patent was approved in early January 2020 and valid for 20 years. However, the entity expected technological advancements will render the new product virtually obsolete by December 31, 2024. The entity decided to account separately any capitalized development cost. Compute for the; amount that should be capitalized as cost of patent Amount that should be capitalized as development cost Amount that should be reported as amortization of intangible assets for 2020.

Antartica Company started a research and development project on a new product on January 1, 2019. Total cost incurred before reaching technological feasibility amounted to P4,000,000 while development cost after reaching technological feasibility amounted to P5,000,000 before year-end. Prior to commercial production, the entity paid legal and registration fees amounting to P1,000,000 in filing for a patent on the new product on July 1, 2019. Early in January 2020, an additional amount of P2,000,000 was incurred to develop the project to full manufacturing stage. The patent was approved in early January 2020 and valid for 20 years. However, the entity expected technological advancements will render the new product virtually obsolete by December 31, 2024. The entity decided to account separately any capitalized development cost. Compute for the; amount that should be capitalized as cost of patent Amount that should be capitalized as development cost Amount that should be reported as amortization of intangible assets for 2020.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Contract Costing

Contract costing is about tracing particular costs related to a particular contract entered into with the customer. It is one of the forms of job order costing. It is useful in long-term contracts at the most. It is seen that substantial time is required for the completion of the contract which takes different accounting periods. Thus, it is very much helpful for recognizing the costs associated with it and accounting in their specific accounting periods.

Question

Research and development costs
Antartica Company started a research and development project on a new product on January 1, 2019.
Total cost incurred before reaching technological feasibility amounted to P4,000,000 while development cost
after reaching technological feasibility amounted to P5,000,000 before year-end.
Prior to commercial production, the entity paid legal and registration fees amounting to P1,000,000 in filing for
a patent on the new product on July 1, 2019.
Early in January 2020, an additional amount of P2,000,000 was incurred to develop the project to full
manufacturing' stage.
The patent was approved in early January 2020 and valid for 20 years.
However, the entity expected technological advancements will render the new product virtually obsolete by
December 31, 2024.
The entity decided to account separately any capitalized development cost.
Compute for the;
amount that should be capitalized as cost of patent
Amount that should be capitalized as development cost
Amount that should be reported as amortization of intangible assets for 2020.

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