Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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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, except for costs related to computer software development, 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…
Technology firms, pharmaceutical firms, oil and gas companies, and other ventures inevitably incur costs on unsuccessful investments in new projects (e.g., new technologies or new drugs). For oil and gas firms, a debate continues over whether those costs should be written off as a period expense or capitalized as part of the full cost of finding profitable oil and gas ventures. However, GAAP in the United States is clear that R&D costs are to be expensed when incurred.
Luther Technologies, an automotive supplier, has been writing R&D costs off to expense as incurred for both financial reporting and internal performance measurement. However, this year a new management team was hired to improve the profit of Luther's Self-Driving Division. The new management team was hired with the provision that it would receive a bonus equal to 12.5 percent of any profits in excess of base-year profits of the division. However, no bonus would be paid if profits were less than 15 percent of…
Which of the following research and development and software development costs should be expensed?
A) Costs incurred to modify or improve an existing profitable product.
B) Software costs before technological feasibility
C) Research and development purchased as part of an acquisition.
D) Salary costs related to discovering a new product.
E) Software development costs incurred after the software works and there is a viable market
Which of the following may indicate impairment may have occurred?
A) Cash discounts are offered on the products the company sells.
B) The business environment is stable.
C) A high gross profit percentage on products sold.
D) A significant decrease in the useful life of the asset.
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