As requested, I have come up with an exclusive analysis on how Dylar Pharmaceutical Company (Dylar) should account for all research and development costs related to Achuin that also abides by the generally acceptable accounting principles. The company should highly comply with the principles in reporting of expenses and costs incurred via capitalization, or expensing of R&D costs are expensed. It is then clear that all expenditures incurred during a research and development process should be expensed, and all purchased intangibles with alternative future uses are capitalized.
The expenses incurred during a research and development process should be expensed. Since the majority of R&D costs are incurred without certainty of making future returns, it is impossible for it to be categorized as an investment or an asset (FASB, 2015, ASC para. 730-10-05-3). Although sometimes the benefits of such costs are predictable, they cannot be estimated with accuracy since little or no relationship exists between the expenses and the expected future returns (FASB, 2015, ASC para. 730-10-05-2). As such, the payments fails to fulfill the measurability test for it to be taken as an asset. Consequentially, Salaries, supplies, and administrative costs associated with Achuin project should be classified as expenses.
Purchased intangibles with alternative future uses are capitalized (FASB, 2015, ASC para. 350-30-25-1). Any intangible purchased should be recorded as capital whenever incurred. However, the cost of such materials and depreciation of facilities or equipment should be expensed (FASB, 2015, ASC para. 730-10-25-2a). It is then imperative that the centrifuge acquired by Dylar should be capitalized as it has long term usability of 20 years.
Purchased intangibles with no alternative future use are expensed as R&D costs. According to accounting standards, intangible assets to be used in research and development only and which cannot be of economic importance to a firm should be expensed (FASB, 2015, ASC para. 730-10-25-2c). Imperatively, the purchase of the patent for Achuin should be expensed.
Legal costs for acquiring a patent are capitalised. While all the other costs incurred in the research and development process are expressed as expeses, general accounting principles stipulates that, legal fee be capitalised as it is categorized as full acquisition cost (FASB, 2015, ASC para. 730-10-55-2i). It is clear that the legal fee should be capitalised.
References
Financial Accounting Standards Board (FASB). (2016). Paragraph 2 of FASB Concepts
Statement No. 2, Research and Development. Retrieved April 7, 2016, from: https://asc.fasb.org/viewpage?ovcmd=goto&codification_text=730-10-05-2&codification_submit=GO+TO
Financial Accounting Standards Board (FASB). (2015). Topic 730 in paragraph 730-10-25-2a: SAB Topic 10, Revenue Recognition. Retrieved April 7, 2016, from: https://asc.fasb.org/viewpage?ovcmd=goto&codification_text=730-10-25-2A
Financial Accounting Standards Board (FASB). (2016). Paragraph 2 of FASB Concepts
Statement No. 4, . Retrieved April 7, 2016, from: https://asc.fasb.org/viewpage?ovcmd=goto&codification_text=730-10-25-2C
Financial Accounting Standards Board (FASB). (2016). FASB Concepts
Statement No. 1, . Retrieved April 7, 2016, from: https://asc.fasb.org/viewpage?ovcmd=goto&codification_text=730-10-55-2I.
