 and welcome to the session in which we will work a CPA simulation or an exercise that illustrates the concept of research and development expense. It's very important for an accounting student or a CPA or CMA candidate to know how to treat, how to handle research and development costs. In other words, well we're saying here research and development expense, is it an expense or is it an asset when we incur those costs? Generally speaking, research when you're trying to discover new things, new processes, new technology, new medication, something new, guess what? The outcome is uncertain. You don't know whether you are going to achieve your objective or not. Since the outcome associated with the research and development cost is uncertain, what are we going to do? We are going to expense research and development because the definition of an asset is something that's going to provide future benefit. Research and development, we would like for it to provide future benefit. We would like it, but there's uncertainty. Similar to the concept of advertisement, when you pay for advertisement, when you pay for advertisement, we expense advertisement. Why? Because we don't know the outcome, the benefit of the advertisement. That's the purpose of it. So let's take a look a little bit more about this concept. The expense of procured equipment that will be utilized for R&D venture this year and other non-related projects in future years. The equipment will be depreciated using the straight line method over five years and we paid 250,000. So we purchase an equipment. It's going to be used in an R&D project this year and this equipment will be used for other non-related projects. In other words, non-research project in future years. The life of this asset is 250. What do we do? Well, we have to be careful here. Generally speaking, if we buy a piece of equipment, an asset, and it's used in the R&D project, we expense it as R&D cost. However, this asset here, what we are told, it's going to be used in R&D project this year and in future years, it's going to be used in non-related project. So this asset will have an alternative use. Alternative means it's not solely, it's not only for the project itself. Well, 250,000 divided by five equal to 50,000. So we are going to do research and development $50,000. We are going to expense research and development of $50,000. So this is the expense for research and development. Only $50,000. If this was not used for non-related projects, so if we purchased this asset and it's only for the project, it would have been, the whole thing would have been expensed. Material used in R&D project, $30,000. What do we do with this material? Before we proceed any further, I have a public announcement about my company farhatlectures.com. Farhat Accounting Lectures is a supplemental educational tool that's going to help you with your CPA exam preparation as well as your accounting courses. 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We are going to expense them as R&D. Material purchased for upcoming R&D project, $50,000. Well, the material, let's assume chemicals or whatever we are buying capsules for the medication. It's an R&D project, but we have not used them yet. We have not consumed them yet. We have not utilized them yet. So what do we do under those circumstances? Under those circumstances, since we have not purchased them yet, so those are still assets. Means what? It's inventory, some sort of an inventory supplies or supplies, but they are not used. They are not expensed yet. Therefore, we don't expense them in R&D because there's a good possibility the whole project might be canceled. So you're not going to expense them or there's a possibility that you might, you don't like this material, you would return them. Well, you don't want to expense them yet. Therefore, the total R&D expense based on these computation, if you are giving a simulation 50 plus 30 is 80, 120, 180, 200,000. So the R&D cost is 200,000. You have to be careful. Again, the equipment, only 50,000 will be expensed as R&D. What should you do now? Go to far hat lectures and look at additional MCQs through false additional exercises. That's going to help you with this important concept of research and development expense, how to account for research and development expense. Good luck, study hard, invest in yourself.