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Which of the following is true of accounting for research and development cost? Accounting for research...

Which of the following is true of accounting for research and development cost?

  • Accounting for research and development costs is same under U.S. GAAP and IFRS.

  • The current accounting for research and development costs under U.S. GAAP avoids the probability of companies to manipulate their earnings.

  • Under U.S. GAAP accounting for research and development costs violates the conservative principle.

  • U.S.GAAP adheres to the matching principle by expensing research and development costs.

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Answer #1

USGAAP :

Research and Development intangible assets acquired in an asset acquisition are capitalised only if the acquired asset have an alternative future use. For satisfaction of this condition, it must be reasonably expected i.e Greater than 50% of chance of that entity will achieve economic benefit from such alternative use and further development is not needed at acquisition date to use the asset.

IFRS :

The price paid reflects expectation about the probability of future economic benefits of asset will flow into ernterprise. The probability of recognition criteria is always assumed to be met for separately acquired Intangible asset.

Conclusion : Window dressing can not be avoided even though USGAAP as well as IFRS dipicts clear picture of treatment of Research and development cost.

There is no difference between accounting Treatment for research and development costs under USGAAP and IFRS. USGAAP adheres to the matching principle by expensing off the research and development costs and USGAAP violates the conservative principle.

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