Question 1: In this era of rapidly changing technology, research and development (R&D) expenditures represent one of the most important factors in the future success of many companies. Organizations...

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Question 1:
In this era of rapidly changing technology, research and development (R&D) expenditures represent one of the most important factors in the future success of many companies. Organizations that spend too little on R&D risk being left behind by the competition. Conversely, companies that spend too much may waste money or not be able to make efficient use of the results.
In the United States, all R&D expenditures are expensed as incurred. However, expensing all R&D costs is not an approach used in much of the world. Firms using IFRS must capitalize development costs as an intangible asset when they can demonstrate (1) the technical feasibility of completing the project, (2) the intention to complete the project, (3) the ability to use or sell the intangible asset, (4) how the intangible asset will generate future benefits, (5) the availability of adequate resources to complete the asset, and (6) the ability to measure development costs associated with the intangible asset.
Should any portion of R&D costs be capitalized? Is expensing all R&D expenditures the best method of reporting these costs? Is the U.S. approach better than the international standard? Which approach provides the best representation of the company’s active\ties?
Question 2.
In this era of rapidly changing technology, research and development (R&D) expenditures represent one of the most important factors in the future success of many companies. Organizations that spend too little on R&D risk being left behind by the competition. Conversely, companies that spend too much may waste money or not be able to make efficient use of the results.
In the United States, all R&D expenditures are expensed as incurred. However, expensing all R&D costs is not an approach used in much of the world. Firms using IFRS must capitalize development costs as an intangible asset when they can demonstrate (1) the technical feasibility of completing the project, (2) the intention to complete the project, (3) the ability to use or sell the intangible asset, (4) how the intangible asset will generate future benefits, (5) the availability of adequate resources to complete the asset, and (6) the ability to measure development costs associated with the intangible asset.
Should any portion of R&D costs be capitalized? Is expensing all R&D expenditures the best method of reporting these costs? Is the U.S. approach better than the international standard? Which approach provides the best representation of the company’s active\ties?
Answered Same DayDec 23, 2021

Answer To: Question 1: In this era of rapidly changing technology, research and development (R&D) expenditures...

Robert answered on Dec 23 2021
116 Votes
Q1. Research and development expenses cab be capitalized and reflected as assets in a
company’s balance sheet or expe
nsed in the income statement of the company. In the former
case, the assets would swell, which would add to the company’s value. In addition, since the
costs wouldn’t be expensed, the on paper profits of the company will be higher. On the other
hand, stating it as an expense would lower the profits especially when the R&D doesn’t add
much to the top line.
Companies are not permitted to capitalize the costs associated with their research and
development activities mainly because there is no way which can exactly and reliably measure
the future economic benefits which can be extracted out of these activities. There is a lot of trial
and error in the process and there is no way to surely know if there will be any favorable result or
outcome. Even if there was a favorable outcome but there is no method or process to objectively
assign a numeric figure to the benefits can be associated to the R&D activity.
This shortcoming prevents the R&D reporting to follow the ‘matching principle’ of accounting
theory, which states that when revenue...
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