Research and Development Costs

Research and development costs are expenditures that may lead

to patents, copyrights, new processes, and new products. Many
companies spend considerable sums of money on research and
development (R&D). For example, in a recent year Samsung (KOR)
spent over W15 trillion on R&D.
Research and development costs present accounting problems as
it is sometimes difficult to assign these costs to specific projects. Also,
there are uncertainties in identifying the amount and timing of future
benefits. Costs in the research phase are always expensed as incurred.
Costs in the development phase are expensed until specific criteria are
met, primarily that technological feasibility is achieved. Development
costs incurred after technological feasibility has been achieved are
capitalized to Development Costs, which is considered an intangible
asset.
To illustrate, assume that Laser Scanner Ltd. spent NT$1 million
on research and NT$2 million on development of new products. Of the
NT$2 million in development costs, NT$400,000 was incurred prior to
technological feasibility and NT$ 1,600,000 was incurred after
technological feasibility had been demonstrated. The company would
record these costs as follows.