Accounting Rules for Research and Development Activities | CFA Level 1 Exam

Not Considered Research and Development Activity

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Question

Accounting rules differentiate research and development activities from activities not considered research and development. Which one of the following is not considered a research and development activity?

Answers

A. Periodic design changes to existing products.

B. Testing in search of product processing alternatives.

C. Modification of the design of a process.

D. None of these answers.

E. Laboratory research intended for the discovery of a new product. A

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Explanations

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A. B. C. D. E.

Explanation

R&D costs must be expensed as incurred. Research is planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service or process or in bringing a significant improvement in an existing product or process.

Development is the translation of research findings into a plan or design. Seasonal or other periodic design changes in existing products do not meet either of these definitions.

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