Question

Researching Original FASB Standards Using the FASB website locate the original (superseded) standard FASB Statement No. 2, Accounting for Research and Development Costs (as amended). In approximately one paragraph, describe the treatment of research and development costs required by this standard, and cite the FASB standard and paragraph number that provides this guidance. State also which disclosures are required. Was there uniform guidance for reporting research and development costs prior to this standard? What alternative accounting methods for recording research and development costs were considered in developing this standard? Explain key factors that led the Board to select the accounting treatment that it did.

Answer 1

This Statement includes standards of financial accounting and reporting for research and development costs with the objectives of reducing the number of alternative accounting and reporting practices.Paragraph 12 of FASB standards 2 requires that research and development costs be charged to expense when incurred shall be applied retroactively by prior period adjustment (described in paragraphs 18 and 26 of APB Opinion No. 9, "Reporting the Results of Operations"). Disclosures of research and development cost as per FASB standard 2 shall be made in the financial staements of total reasearch and development costs charged to expense in each period for which income statement created. a goverenment regulated body which are using APB opinion no.2 to defers its research and development cost shall disclode following information :

a) accounting policy including amortization basis.

b) total cost incurred in each period for which income statement created and amount of capitalized costs in each period.

The disclosures of the amount for earlier periods i.e. before this standard shall be based to the extent practicable on the guidelines in paragraphs 8-11 of this Statement for identifying research and development activities and costs.

The Board considered four alternative methods of accounting at the time research and development costs are incurred:

a. Charge all costs to expense when incurred.

b. Capitalize all costs when incurred.

c. Capitalize costs when incurred if specified conditions are fulfilled and charge all other costs to expense.

d. Accumulate all costs in a special category until the existence of future benefits can be determined.