Research and Development at Thomas Company
Research and Development at Thomas Company
The Thomas Company is in the process of developing a revolutionary new product. A new division of
the company was formed to develop, manufacture, and market this product. As of the end of the
year December 31, 2010, the product has not been manufactured for resale; however, the prototype
unit was built and is in operation. Throughout 2010, the division incurred certain costs including
design and engineering studies, prototype manufacturing costs, administration expenses (including
salaries of administrative personnel), and market research costs. In addition, $500,000 in equipment
(estimated useful life of 10 years) was purchased for use in developing and manufacturing the
preproduction prototype and will be used to manufacture the product. Approximately $200,000 of
this equipment was built specifically for the design and development of the product; the remaining
$300,000 of equipment will be used to manufacture a product once it is in commercial production.
Required: In the U.S. (SFAS No. 2), development costs are expensed but under the IFRS (IAS 38),
many development costs are capitalized. Judge and support which treatment adheres best to the
matching principle, basic to the conceptual frameworks of both U.S. GAAP and IFRS.
Your wellwritten paper must be 23 pages, in addition to title and reference pages. Cite at least two
peerreviewed sources, in addition to the required reading for the module.
