CFA Practice Question
Which of the following is most likely correct?
A. SFAS requires all R and D costs (except contract R and D performed for unrelated entities) to be expensed in the period they were incurred.
B. Expensing rather than capitalizing R and D in the initial years should lead to lower total asset turnover.
C. Expensing rather than capitalizing R and D in the initial years should lead to higher CFO.
Explanation: Expensing results in the costs being in CFO, whereas capitalizing puts them in CFI. Expensing also leads to lower assets etc.
User Contributed Comments 3
User | Comment |
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jpducros | SFAS is IFRS related...and under IFRS, Research costs are expensed while Development cost are capitalised....Answer A is not really correct. |
JCopeland | jpducros: SFAS, Statement of Financial Accounting Standards, are formal documents issued by the Financial Accounting Standards Board (FASB) in the US. C is definitely incorrect, and expensing should lower total assets which would increase turnover for a given amount of sales. |
reganbaha | only development costs after technical feasibilty has been demonstrated. You can have development cost before tech. feas. ie. running a pilot plant to prove a technique on a larger scale. |