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Accounting for Patent Costs

Ronald Company incurred costs between 2016 and 2017 for the research and development of a new fiber optic cable. Total R&D costs before technological feasibility was achieved were P4,000,000, and an additional P5,000,000 after feasibility. Ronald paid P1,000,000 in legal and registration fees to obtain a patent on the product, valid until December 31, 2036. However, the product was expected to become obsolete by December 31, 2021. The question asks for the total amount that should be capitalized as the cost of the patent.

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517 views1 page

Accounting for Patent Costs

Ronald Company incurred costs between 2016 and 2017 for the research and development of a new fiber optic cable. Total R&D costs before technological feasibility was achieved were P4,000,000, and an additional P5,000,000 after feasibility. Ronald paid P1,000,000 in legal and registration fees to obtain a patent on the product, valid until December 31, 2036. However, the product was expected to become obsolete by December 31, 2021. The question asks for the total amount that should be capitalized as the cost of the patent.

Uploaded by

Winona Anne Escarez
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Solve Me

Ronald Company started a research and development project on a new fiber optic cable capable of greater
bandwidth, and full duplex voice calls on March 1, 2016. The total cost incurred before reaching
technological feasibility amounted to P4,000,000 while development cost after reaching technical feasibility
amounted to P5,000,000 before year-end. Before commercial production, Ronald paid legal and registration
fees amounting to P1,000,000 in filing for a patent on the new product on July 1, 2016. Early in January of
2017, an additional amount of P2,000,000 was incurred to develop the project to the full manufacturing
stage. The patent was approved in early January 2017 and valid until December 31, 2036. However, Ronald
expected technological advancements would render the new product virtually obsolete by December 31,
2021. Ronald planned to develop a new product by that time and apply for a new patent for the upgraded
fiber optic cable by the end of 2021. Any capitalized development cost should be amortized over the useful
life of the patent. Total cost related to commercial production incurred during 2017 amounted to
P30,000,000.

What total amount should be capitalized as a cost of patent?

ANS:
1,600,000
SOL:
Cost of patent P1,000,000

Amortization of patent (P1,000,000/5) P200,000


Amortization of development cost (P7,000,000/5) 1,400,000
Total amortization for 2017 P1,600,000

TOP: Intangible Assets

More questions in www.icpa.ph

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