Research & Development

1. Research & Development • SFAS 2: expense as incurred • Generally up to the start of commercial production • R & D for others is capitalized Intermediate Accounting I – Fall 2011

2. Start Up Expenditures • SOP 98-5: expense as incurred Intermediate Accounting I – Fall 2011

3. Software Development Expenditures • SFAS 86: developed for others • Capitalize after achieving technological feasibility • Amortized over useful life of product • SOP 98-1: developed for internal use • Essentially for SFAS 86 • IPR & D: purchased R&D • Capitalize as indefinite-life intangible Intermediate Accounting I – Fall 2011

4. Cost Allocation • Service life • Allocation base (& residual value) • Allocation method Intermediate Accounting I – Fall 2011

5. Depreciation • Time based vs. activity based • Time based • Straight line-S/L • Sum of the years’ digits-SYD • Declining balance-DDB • Activity based • Units of production Intermediate Accounting I – Fall 2011

6. Depletion • Cost allocation for natural resources • Units of production for books • Percentage depletion for taxes • Traditionally applied directly to asset account Intermediate Accounting I – Fall 2011

7. Amortization • Cost allocation for intangibles • Excludes goodwill & intangibles with indefinite lives • S/L method is used • Traditionally applied directly to asset account Intermediate Accounting I – Fall 2011

8. Partial Periods • Half-year convention Intermediate Accounting I – Fall 2011

9. Changes in Estimates • Revision of estimated useful life • Reflect in current F/S • Disclose in footnotes Intermediate Accounting I – Fall 2011

10. Change in Depr. Method • Treat prospectively • Pro forma prior years’ impact if material • Disclose in footnotes Intermediate Accounting I – Fall 2011

11. Error Correction-Material • Restatement • Adjust R/E & Stmt. of S/E • Disclose in footnotes Intermediate Accounting I – Fall 2011

12. Goodwill (SFAS 142) &Impairment • G/W must be tested annually for impairment • Impairment-operational assets & G/W • Triggering event • Recognition requirement • Measurement Intermediate Accounting I – Fall 2011

13. Maintenance or Betterment • Addition or betterment, if • Increases output • Improves quality • Extends useful life • Reduces operating cost • Expense if maintenance • Capitalize if betterment Intermediate Accounting I – Fall 2011

14. Additions, Improvements &Rearrangements • Additions: capitalize • Improvements • Substitution • Capitalization • Reduction of accumulated depreciation • Rearrangements: capitalize if material • Dispositions: results in gain or loss Intermediate Accounting I – Fall 2011