CFA Practice Question

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
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.
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