GAAP requires that research and development (R&D) costs be treated as period exp
ID: 2451881 • Letter: G
Question
GAAP requires that research and development (R&D) costs be treated as period expenses, prohibiting their capitalization. Because of this, when a company has an internally developed intangible asset, it does not show any value for it on its balance sheet. Only purchased intangibles, having a more identifiable value (cost) are carried as assets on balance sheets.
Many in the accounting field and in business in general believe that this rule should be changed. These critics argue that it is possible to derive the cost of internally developed intangibles accurately and that the current rule is just unfair since it forces companies to leave off their balance sheets a right that will yield benefits over multiple future periods.
take a position for or against allowing companies to capitalize the cost internally developed intangibles, then:
1. State you position and explain the reasons why you have taken it.
2. Explain why your position is superior to the contrary one, stating advantages and disadvantages of both (use at least one referenced source other than our textbook to strengthen your point).
3. Find classmates with an opposing point of view and engage in discussion (not by stating agreement but by questioning or challenging their positions).
Explanation / Answer
The cost of internally developed intangibles should not be capitalized because;
There is always a difficulty in quantifying those future benefits from such intangible assets.
Value of assets will be overstated in the books of account that is not good for an organization.
At the same time, because the costs wouldn't be treated as expenses, company's profits, at least would be higher only on papers finally tax liability will be higher.
R&D involves trial and error then how on the basis of trial and error we can record something as an assets.
If R&D is failed then how we will treat after recording it as an assets in the books of accounts.
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