R&D expensed or capitalized

CFA Level II
#1

I thought US GAAP required R&D to be expensed. Question 37 morning exam 3 of Schweser Volume 2 exams adjusts the R&D to be capitalized. When adjusting financial statements do we capitalize? thanks, any input would be appreciated

#2

us gaap: expense for economic value added models. capitalize and amortize.

#3

I believe for true NOPAT calculations (from what I can remember from my MBA) I believe that is one of the adjustments. I will personally just stick with EBIT (1-T) for the purposes of the exam. For balance sheet adjustments, as it relates to the CFAI material, I dont believe you capitalize R&D. In the real world (software companies aside), depending on the company you are analyzing , you might want to. In terms of acquisitions, it could tell you a lot about Goodwill. This is because a high R&D company will have a low asset base since one of their main assets (innovation and product development) is expensed every year and this might not reflect it’s true value of the company.

#4

Thanks Barthezz… I was infuriated for about 10 minutes and threw my paper water cup about 5 times before crushing it.

#5

barthezz Wrote: ------------------------------------------------------- > us gaap: expense > > for economic value added models. capitalize and > amortize. thanks dude or dudette!!