In this case, it was about the Volvo Group, a company that supplies commercial vehicles. Headquartered in Torslanda, Sweden, the Volvo complies with IFRS GAAP, not US GAAP. Volvo is investing SEK million in research and development to reduce its environmental impact and enable new breakthroughs to comply with future emissions and other global regulations. , This case focuses on R & D costs. To close this case, you need to know what type of cost you want to classify as R & D cost. These usually include the cost of developing a new product or system. Under IFRS, companies have the option of capitalizing some of these costs instead of recognizing them as costs if certain criteria are met. In the United States, GAAP requires that all R & D costs be recognized as costs, but IFRS is technical, ensuring that capitalized costs will lead to future economic benefits for the enterprise. Allows companies to capitalize development when it is possible. New pre-development products or software are recognized as assets. Allowing companies to capitalize their development costs provides more accurate financial statements. IFRS does not allow companies to expense research expenses as those costs are too difficult to accurately assess what products benefitted from what research. Development costs are easier to assign and can therefore be reasonably attached to certain products and capitalized instead of expensed. After capitalizing certain costs they can more accurately be assigned throughout the life of the product.The company can amortize the costs over the useful life of the newly developed product instead of having to expense them all at once. A. The 2009 income statement shows R & D expenses for SEK 13,193 (SEK 13,193). What kind of costs can these amounts include? B. The Volvo Group records R & D expenses in accordance with IAS 38 "Intangible Assets" (see excerpt from IAS 38 at the end of this case). As a result, the company has capitalized certain R & D and other costs. What factors does the Volvo Group take into account when deciding which R & D spending to capitalize and which R & D spending to spend? C. the R&D costs that Volvo Group capitalizes each period (labeled Product and software development costs) are amortized in subsequent periods, similar to other capital assets such as property and equipment. Notes to Volvo`s financial statements disclose that capitalized product and software development costs are amortized over three to eight years. What factors would the company consider in determining the amortization period for particular costs? D. Under U.S. GAAP, companies must expense all R&D costs. In your opinion, which accounting principle (IFRS or U.S. GAAP) provides financial

Statements that better reflect costs and benefits of periodic R&D spending? E. See footnote 14 Volvo discloses intangible assets in Product and Software Development. Suppose the product and software development costs listed in footnote 14 are the only R & D costs that Volvo leverages. i. What is the capitalized development cost of the product and software minus the accumulated depreciation at the end of fiscal year 2009? Which item on the Volvo Group's balance sheet indicates this intangible asset? ii. Create a t account of the intangible asset "Product and Software Development" minus the cumulative depreciation amount. Enter the beginning and ending balances for the fiscal year 2009. Show entries for T account that captures Activation (Investment) and Depreciation 2009. To simplify the analysis, group all other account activity for the year and the reports the net impact as one entry in the T account.F. Refer to Volvo's balance sheet, footnotes, and the eleven-year summary. Assume that the product and software development costs reported in footnote 14 are the only R&D costs that Volvo capitalizes. (11 year summary with 2007) i. Complete the table below for Volvo's Product and software development intangible asset.

(In SEK millions) 2007 2008 2009

1) Product and software development

Costs capitalized during the year.

2) Total R&D expense of the income

Statement.

3) Amortization of previously capitalized

Costs (included in R&D expense)

4) Total R&D costs incurred during the

Year=1+2-3

ii. What proportion of Total R&D costs incurred did Volvo Group capitalize (as product and software development intangible asset) in each of the three years? G. suppose you work as a financial analyst at Volvo Group and want to compare Volvo's R & D spending with Navistar International Corporation, a competitor of in the United States. Navistar is US GAAP compliant, which requires all R & D expenses to be recognized as expenses in the year incurred. You collect the following information about Navistar in fiscal year, which ended October 31, 2007-2009.

(In US $ millions) 2007 2008 2009 Total R&D costs incurred during the year, expensed on the income statement 375 384 433 Net sales, manufactured products 11,910 14,399 11,300 Total assets 11,448 10,390 10,028 Operating income before tax (73) 191 359

I. Use the information from Volvo's eleven-year summary to complete the following table: (in SEK millions) 2007 2008 2009 Net sales, industrial operations

Total assets, from balance sheet

ii. Calculate the ratio of total R & D expenses to the net sales from both companies' businesses (called the net sales of Navistar's manufactured products). How is the share compared between the two companies?

In 2011, the Gallo Manufacturing Company spent $ 90 million on research and development (R & D) costs to create long-lasting batteries for use in computers. All R & D expenses were expensed in 2011 in accordance with FASB standards. Manufacturing costs (direct materials, direct labor, and overhead costs) are expected to be $ 260 per unit. Packing, shipping and sales fees are expected to be $ 50 per unit. Gallo plans to sell 2,000,000 batteries before new research makes battery design technically obsolete. In 2011, Gallo manufactured 440,000 batteries, of which 400,000 were sold.

a. Identify upstream and downstream costs. Born

b. Determine the quantity and final inventory of products sold in 2011.

Underground Sprinkler Supply sells sprinkler systems suitable for large and small gardens. The company has decided to use process costing. Last year, the company spent $ 1,000,000 on expenses related to the following activities:

Activity Allocation Base Overhead Cost Purchasing number of purchase orders $ 350,000 Material handling number of shipments received 200,000 Quality inspection number of inspections 450,000

The activities for large and small yard systems were as follows: Large Small purchase orders 15,000 20,000 shipments received 7,500 12,500 inspections 11,500 11,000

If a customer requested a bid on a specially designed sprinkler that would probably require four inspections, how much quality inspection overhead would you include in the bid? a. $ 0 b. $40 c. $80 d. $120. e. $160