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Accounting R&D Essay

946 words - 4 pages

Slide 1Topic is about Research and Development expenditure under US GAAP and IFRS. I’m going to be focusing on internally generated costs
Why companies investing in R&D
Slide 2: It’s hard for companies to stay competitive to their competitor in their industry if they can’t hold the latest and most innovative technology. So investing in R&D helps companies stay competitive
Business performances: statically, in a survey in Canada in 2007, 44% of ideas of innovation come from the source of R&D. Thus, R&D help improve business performance.
Slide 3How companies in US and the world are investing in R&D? In US, for the year 2014 to come, US companies are expected to spend $ 465 billion into R&D ...view middle of the document...

GAAP reason that at the time of R&D costs incurred, future economic benefits are uncertain, there’s not indication of economic resource has been created.
Example 1: Company A is developing a new drug for cancer that has successfully completed first phase of testing. The drug is now still being developed and on later phases of testing. Company is still concerning about the approval of the drug from FDA has not stated any marketing yet. According to ASC 730-10-25-1 all costs of developing the drug shall be charged to expense as incurred, company can’t capitalize the R&D costs
Example2: Company A developed a mobile device and now on the way of developing to update and add new functionality to the device. According to ASC 730-10-25-1 all the costs of development of the new functionality are expensed as incurred. Company can’t capitalize these costs
Accounting for R&D in Pfizer: Pfizer is an American multinational pharmaceutical corporation headquartered in New York, one of the world largest pharmaceutical companies by revenues.
For the year 2013, R&D expense is about 6.6 billion dollar
GAAP page 62
Research and development expenses-operation 31
How account for R&D- page 65
Amortization of already capitalized page 91

IFRS
Accounting standard: IFRS doesn’t provide a specific guidance for R&D activities. However, the accounting treatment for R&D needs to be interpreted from IAS 38 Intangible Asset.
IAS 38 divides R&D activities into 2 phases: research phase and development phase. In the research phase it’s impossible to demonstrate the costs would generate future economic effort or not so it’s going to be charged to expenses as incurred.
In development phase, IAS 38 rules that...

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