Reference no: EM132700756

Derek Louie owns four companies :

I. V Company incurred the following costs during the current year: Laboratory research aimed at discovery of new knowledge 400,000; Cost of testing prototype (economic viability not achieved) 100,000; Quality control during commercial production 600,000; Construction of research facility having an estimated useful life of 5 years but no alternative future use 800,000.

II. W Company incurred the following costs in the current year:

Equipment with a useful life of four years to be used in various research and development projects 3,600,000;

Start-up costs incurred when opening a new plant 8,400,000;

Advertising expense to introduce new product 4,200,000;

Engineering costs incurred to advance a product to full production stage but economic viability is not yet achieved 2,400,000.

III. X Company incurred the following costs during the current year: Routine on-going effort to refine, enrich, or otherwise improve an existing product 250,000; Design, construction and testing of preproduction model 220,000; Quality control during commercial production 300,000; Laboratory research for discovery of new knowledge 360,000.

IV. Y Company purchased machines for P2,000,000 each at the beginning of current year. The machines were put into use immediately. Machine AE has a useful life of 5 years and can be used only in one research project. Machine BF will be used for 2 years on a research and development project and then used by the production division for an additional 8 years. The straight line method of depreciation is used.

Problem 1: What is the total amount to be recognized as research and development expense for the current year of the four companies owned by Derek Louie?