As per your request, I have prepared guidance on how to account for R&D costs related to the development of Achuin in accordance with the U.S. GAAP. The cost items discussed in the memo include; R&D expenses, purchase of patent, purchase of centrifuge, and the legal fees associated with the patent approval. R&D costs and the costs of purchasing the patent should be expensed while the costs of the centrifuge and the legal fees of applying for the patent should be capitalized.
As a rule, R&D costs are expensed in the period they occur because at the time R&D costs are incurred the future benefits of such costs are uncertain. Therefore, R&D costs fail to meet the measurability test of an asset (FASB, 2016, ASC para. 730-10-05-2). In addition, there is a high degree of uncertainty that future benefits will be derived from current R&D expenditure. The uncertainty of future benefits makes it difficult to demonstrate a direct or indirect relationship that can be used as a logical basis of allocating R&D costs (FASB, 2016, ASC para. 730-10-05-3). A patent is an intangible asset that should be recognized when it is acquired either individually or with a group of other assets (FASB, 2016, ASC para. 350-30-25-1). However, the cost of acquiring the patent from Sneezin Venn for use in the R&D represents an intangible asset that has no alternative future use that should be expensed together with other R&D expenses (FASB, 2016, ASC para. 730-10-25-2c).
The purchase of a centrifuge for the sake of conducting R&D should be capitalized because the centrifuge is a tangible asset that has alternative future use (FASB, 2016, ASC para. 730-10-25-2a). However, the depreciation expense of the centrifuge is part of the R&D costs and should be expensed during the period (FASB, 2016, ASC para. 730-10-25-2a).
While there is no clear guideline on the treatment of legal fees associated with the application, litigation, or sale of patents, legal fees are excluded from R&D costs and need not be expensed together with other R&D expenses (FASB, 2016, ASC para. 730-10-55-2i.). Therefore, the legal fees associated with the approval of the patent should be capitalized.
Should you have any further questions I will be glad to offer clarifications.
References
Financial Accounting Standards Board (FASB). (2016). Research and Development. Retrieved
Financial Accounting Standards Board (FASB). (2016). Assets. Retrieved
