[rsiddiqui]

During Year 1, Lyle Co. incurred $400,000 of research and development costs in its laboratory to develop a product for which a patent was granted on July 1, Year 1. Legal fees and other costs associated with the patent totaled $82,000. The estimated economic life of the patent is 10 years. What amount should Lyle capitalize for the patent on July 1, Year 1 under U.S. GAAP?

a. $400,000

b. $82,000

c. $482,000

d. $0

I understand legal cost is capitalized but isn’t the depreciation calculated capitalized also?

rsiddiqui

[2MoreLeft]

the only rule I'm thinking of for depreciation as it relates to R&D is for alternate use assets that are used for r&d.. E.g. if an asset is used for r&d for 3years and the rest of its 10 year life is used for alternate uses (not r&d) then the depreciation for those 3 years are expensed as r&d.. Not as regular depreciation expense. In this case the legal costs would be capitalized. But I don't think depreciation expense is ever capitalized.

Passed 3.. Had one to go.. Couldn't pass it.. All expired.. Starting from scratch..

[nadroj]

R&D costs are generally expensed under GAAP. There are some exceptions, such as for software, but not 100% on the details.

In any event, I'm not sure what depreciation you want to capitalize, as the question doesn't break out the R&D expense components. For all we know, the $400k was for salaries.

[Author]

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